IDEAS home Printed from https://ideas.repec.org/a/ecb/ecbrbu/20230108.html
   My bibliography  Save this article

Navigating liquidity crises in non-banks: An assessment of central bank policies

Author

Listed:
  • Breckenfelder, Johannes
  • Hoerova, Marie

Abstract

Are central bank tools effective in reaching non-banks with no access to the lender of last resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale asset purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared with other banks. JEL Classification: E58, G01, G10, G21, G23

Suggested Citation

  • Breckenfelder, Johannes & Hoerova, Marie, 2023. "Navigating liquidity crises in non-banks: An assessment of central bank policies," Research Bulletin, European Central Bank, vol. 108.
    • Handle: RePEc:ecb:ecbrbu:2023:0108:
    Note: 1125999
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230620~956b988ecd.en.html
    Download Restriction: no
    File URL: https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230620~956b988ecd.en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Goldstein, Itay & Jiang, Hao & Ng, David T., 2017. "Investor flows and fragility in corporate bond funds," Journal of Financial Economics, Elsevier, vol. 126(3), pages 592-613.
    2. Falato, Antonio & Goldstein, Itay & Hortaçsu, Ali, 2021. "Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets," Journal of Monetary Economics, Elsevier, vol. 123(C), pages 35-52.
    3. Buiter, Willem & Cecchetti, Stephen & Dominguez, Kathryn & Sánchez Serrano, Antonio, 2023. "Stabilising financial markets: lending and market making as a last resort," Report of the Advisory Scientific Committee 13, European Systemic Risk Board.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thiago Fauvrelle & Mathias Skrutkowski, 2023. "Collateral pledgeability and asset manager portfolio choices during redemption waves," Working Papers 58, European Stability Mechanism, revised 12 Dec 2023.
    2. Valentin Haddad & Alan Moreira & Tyler Muir, 2021. "When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response [Funding value adjustments]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5309-5351.
    3. Darmouni, Olivier & Papoutsi, Melina, 2022. "The rise of bond financing in Europe: five facts about new and small issuers," Working Paper Series 2663, European Central Bank.
    4. Darmouni, Olivier & Papoutsi, Melina, 2022. "Europe's growing league of small corporate bond issuers: new players, different game dynamics," Research Bulletin, European Central Bank, vol. 96.
    5. Breckenfelder, Johannes & Ivashina, Victoria, 2021. "Bank balance sheet constraints and bond liquidity," Working Paper Series 2589, European Central Bank.
    6. Mugerman, Yevgeny & Steinberg, Nadav & Wiener, Zvi, 2022. "The exclamation mark of Cain: Risk salience and mutual fund flows," Journal of Banking & Finance, Elsevier, vol. 134(C).
    7. Boyarchenko, Nina & Kovner, Anna & Shachar, Or, 2022. "It’s what you say and what you buy: A holistic evaluation of the corporate credit facilities," Journal of Financial Economics, Elsevier, vol. 144(3), pages 695-731.
    8. Bagattini, Giulio & Fecht, Falko & Maddaloni, Angela, 2023. "Liquidity support and distress resilience in bank-affiliated mutual funds," SAFE Working Paper Series 385, Leibniz Institute for Financial Research SAFE.
    9. Massimiliano Affinito & Raffaele Santioni, 2021. "When the panic broke out: COVID-19 and investment funds' portfolio rebalancing around the world," Temi di discussione (Economic working papers) 1342, Bank of Italy, Economic Research and International Relations Area.
    10. Mathias S. Kruttli & Phillip J. Monin & Lubomir Petrasek & Sumudu W. Watugala, 2021. "Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis," Finance and Economics Discussion Series 2021-038, Board of Governors of the Federal Reserve System (U.S.).
    11. Laura Capota & Margherita Giuzio & Sujit Kapadia & Dilyara Salakhova, 2022. "Are ethical and green investment funds more resilient?," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistics for Sustainable Finance, volume 56, Bank for International Settlements.
    12. Yoshihiko Hogen & Yoshiyasu Koide & Yuji Shinozaki, 2022. "Rise of NBFIs and the Global Structural Change in the Transmission of Market Shocks," Bank of Japan Working Paper Series 22-E-14, Bank of Japan.
    13. Hoerova, Marie & Breckenfelder, Johannes, 2023. "Do non-banks need access to the lender of last resort? Evidence from fund runs," CEPR Discussion Papers 18122, C.E.P.R. Discussion Papers.
    14. Wagner, Alexander F. & Glossner, Simon & Matos, Pedro Pinto & Ramelli, Stefano, 2022. "Do institutional investors stabilize equity markets in crisis periods? Evidence from COVID-19," CEPR Discussion Papers 15070, C.E.P.R. Discussion Papers.
    15. Zhang, Ning & Zhang, Yue & Zong, Zhe, 2023. "Fund ESG performance and downside risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    16. Mählmann, Thomas, 2022. "Negative externalities of mutual fund instability: Evidence from leveraged loan funds," Journal of Banking & Finance, Elsevier, vol. 134(C).
    17. Sirio Aramonte & Andreas Schrimpf & Hyun Song Shin, 2023. "Non-bank financial intermediaries and financial stability," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 7, pages 147-170, Edward Elgar Publishing.
    18. Barbu, Alexandru & Fricke, Christoph & Mönch, Emanuel, 2020. "Procyclical asset management and bond risk premia," Discussion Papers 38/2020, Deutsche Bundesbank.
    19. Antoine Baena & Thomas Garcia, 2023. "Swing Pricing et dynamique des flux au regard de la crise Covid-19," Working papers 914, Banque de France.
    20. Jiang, Hao & Li, Yi & Sun, Zheng & Wang, Ashley, 2022. "Does mutual fund illiquidity introduce fragility into asset prices? Evidence from the corporate bond market," Journal of Financial Economics, Elsevier, vol. 143(1), pages 277-302.

    More about this item

    Keywords

    asset purchases; COVID-19 liquidity crisis; Investment funds; lender of last resort; market-maker of last resort;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbrbu:2023:0108:. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.