Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269144 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2737
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
The market turmoil in March 2020 highlighted key vulnerabilities in the EU money market fund (MMF) sector. This paper assesses the effectiveness of the EU's regulatory framework from a financial stability perspective, based on a panel analysis of EU MMFs at a daily frequency. First, we find that investment in private debt assets exposes MMFs to liquidity risk. Second, we find that low volatility net asset value (LVNAV) funds, which invest in non-public debt assets while offering a stable NAV, face higher redemptions than other fund types. The risk of breaching the regulatory NAV limit may have incentivised outflows among some LVNAV investors in March 2020. Third, MMFs with lower levels of liquidity buffers use their buffers less than other funds, suggesting low levels of buffer usability in stress periods. Our findings suggest fragility in the EU MMF sector and call for a strengthened regulatory framework of private debt MMFs.
Subjects: 
money market funds
financial fragility
COVID-19
regulation
JEL: 
G11
G15
G23
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5385-6
Document Type: 
Working Paper

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