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Crisis regulations: The unexpected consequences of floating NAV for money market funds

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  • Allen, Kyle D.
  • Winters, Drew B.

Abstract

From the inception of money market funds (MMFs), all MMFs reported a fixed $1 NAV (Net Asset Value). In July 2014, the Securities and Exchange Commission (SEC) issued new regulations for MMFs that require Prime institutional MMFs to report floating NAVs. The SEC did not expect a significant impact on the MMF industry from requiring floating NAVs for Prime institutional funds. We find that over 70% of the assets under management in Prime MMFs left Prime funds with over half the Prime funds closing. We find that more than half of the Prime retail MMFs (which are not required to switch to floating NAV) closed with more than 50% of the assets under management exiting these funds. Finally, we find that for every dollar that exited Prime MMFs a dollar was added to Government MMFs. Based on the SEC's economic discussions, these results all represent unexpected consequences.

Suggested Citation

  • Allen, Kyle D. & Winters, Drew B., 2020. "Crisis regulations: The unexpected consequences of floating NAV for money market funds," Journal of Banking & Finance, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jbfina:v:117:y:2020:i:c:s0378426620301175
    DOI: 10.1016/j.jbankfin.2020.105851
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    References listed on IDEAS

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    Cited by:

    1. Kyle D Allen & Ahmed S Baig & Pritam Saha, 2025. "Bank-Level Political Risk and the CD Rates Required by Money Market Funds," Journal of Financial Services Research, Springer;Western Finance Association, vol. 67(3), pages 139-155, June.
    2. Ahmed S. Baig & Drew B. Winters, 2021. "Month-End Regularities in the Overnight Bank Funding Markets," JRFM, MDPI, vol. 14(5), pages 1-16, May.
    3. Kyle D. Allen & Ahmed Baig & Drew B. Winters, 2024. "The response of money market fund investors and managers to government shutdowns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(1), pages 214-237, March.
    4. Allen, Kyle & Saha, Pritam & Whitledge, Matthew & Winters, Drew, 2023. "Money market reforms:The effect on the commercial paper market," Journal of Banking & Finance, Elsevier, vol. 154(C).

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    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • 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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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