Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324845 
Year of Publication: 
2025
Series/Report no.: 
Staff Reports No. 1160
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We ask whether imposing fees on redeeming investors can prevent runs on money market mutual funds (MMFs) and related intermediation arrangements. We first show that imposing a fee only in extraordinary times often leaves the fund susceptible to a preemptive run where investors rush to redeem before the fee applies. We then show how a policy that imposes a fee when current redemption demand is above a threshold, even in normal times, can make the fund run proof. We characterize the best policy of this type, which is immune to a run of any size. We show that the reform adopted in the U.S. in 2023 leaves funds vulnerable to runs in some market conditions and imposes an inefficiently large fee in others.
Subjects: 
financial stability policy
preemptive runs
shadow banking
JEL: 
G28
G23
D82
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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