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Mind the liquidity gap: a discussion of money market fund reform proposals

Author

Listed:
  • Grill, Michael
  • Molestina Vivar, Luis
  • Mücke, Christian
  • O’Donnell, Charles
  • O’Sullivan, Sean
  • Wedow, Michael
  • Weis, Moritz
  • Weistroffer, Christian

Abstract

This article assesses proposed reforms to the European Money Market Funds (MMF) Regulation to enhance the resilience of the sector. Specifically, the article provides a rationale for requiring private debt MMFs to hold higher levels of liquid assets, of which a part should be public debt, and considers the design and calibration of such a requirement. The article also proposes that the impediments to the use of liquidity buffers should be removed and authorities should have a role in releasing these buffers. Finally, while the removal of a stable net asset value for low-volatility MMFs would reduce cliff effects, we argue that this might not be necessary if liquidity requirements for these private debt MMFs are sufficiently strengthened. JEL Classification: G23, G28, G01

Suggested Citation

  • Grill, Michael & Molestina Vivar, Luis & Mücke, Christian & O’Donnell, Charles & O’Sullivan, Sean & Wedow, Michael & Weis, Moritz & Weistroffer, Christian, 2022. "Mind the liquidity gap: a discussion of money market fund reform proposals," Macroprudential Bulletin, European Central Bank, vol. 16.
    • Handle: RePEc:ecb:ecbmbu:2022:0016:1
    Note: 1280809
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    More about this item

    Keywords

    Financial stability; Liquidity risk; Money market funds; Regulation;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G01 - Financial Economics - - General - - - Financial Crises

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