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Did Public Debt Assets Improve the Resilience of Money Market Funds during the COVID-19 Crisis?

Author

Listed:
  • Dunne, Peter G.

    (Central Bank of Ireland)

  • Giuliana, Raffaele

    (Central Bank of Ireland)

Abstract

This paper aims to inform the debate about the reform of MMF regulation, which is currently a central theme for several prominent policy institutions. Some types of MMFs experienced challenging outflows in March 2020. This, and evidence suggesting that flows are linked with proximity to liquidity thresholds, has led to a reassessment of the adequacy of the post-GFC regulatory architecture. A suggested alternative to mandating the use of ever more complex liquidity management tools, is to require funds to hold assets that remain liquid and valuable during a crisis. Using supervisory data on Irish-domiciled non-public debt MMFs (i.e., LVNAVs and VNAVs), we provide robust graphical and econometric evidence indicating that MMFs voluntarily holding more Public-Debt Assets (PDAs) than required by MMF regulations, experienced lower outflows during the COVID-19 crisis. There is also evidence of resilience effects associated with having deposit buffers above requirements.

Suggested Citation

  • Dunne, Peter G. & Giuliana, Raffaele, 2022. "Did Public Debt Assets Improve the Resilience of Money Market Funds during the COVID-19 Crisis?," Financial Stability Notes 5/FS/22, Central Bank of Ireland.
    • Handle: RePEc:cbi:fsnote:5/fs/22
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    File URL: https://www.centralbank.ie/docs/default-source/publications/financial-stability-notes/no-5-did-public-debt-assets-improve-the-resilience-of-money-market-funds.pdf?sfvrsn=1537971d_5
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    References listed on IDEAS

    as
    1. Dunne, Peter G. & Giuliana, Raffaele, 2022. "Do redemptions increase as money market funds approach regulatory liquidity thresholds?," Research Technical Papers 2/RT/22, Central Bank of Ireland.
    2. Capotă, Laura-Dona & Grill, Michael & Molestina Vivar, Luis & Schmitz, Niklas & Weistroffer, Christian, 2021. "How effective is the EU Money Market Fund Regulation? Lessons from the COVID 19 turmoil," Macroprudential Bulletin, European Central Bank, vol. 12.
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