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The stability of prime money market mutual funds: sponsor support from 2007 to 2011

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  • Steffanie Brady
  • Ken Anadu
  • Nathaniel R. Cooper

Abstract

It is commonly noted that in the history of the Money Market Mutual Fund (MMMF) industry only two MMMFs have “broken the buck,” or had the net asset value per share (NAV) at which they transact fall below $1. While this statement is true, it is useful to consider the role that non-contractual support has played in the maintenance of this strong track record. Such support, which has served to obscure the credit risk taken by these funds, has been a common occurrence over the history of MMMFs. This paper presents a detailed view of the non-contractual support provided to MMMFs by their sponsors during the recent financial crisis based on an in depth review of public MMMF annual SEC financial statement filings (form N-CSR) with fiscal year-end dates falling between 2007 and 2011. According to our conservative interpretation of this data, we find that at least 21 prime MMMFs would have broken the buck absent a single identified support instance during the most recent financial crisis. Further, we identify repeat instances of support (or significant outflows) for some MMMFs during this period such that a total of at least 31 prime MMMFs would have broken the buck when considering the entirety of support activity over the full period.

Suggested Citation

  • Steffanie Brady & Ken Anadu & Nathaniel R. Cooper, 2012. "The stability of prime money market mutual funds: sponsor support from 2007 to 2011," Risk and Policy Analysis Unit Working Paper RPA 12-3, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbqu:rpa12-3
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    References listed on IDEAS

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    Cited by:

    1. Schmidt, Lawrence & Timmermann, Allan G & Wermers, Russ, 2014. "Runs on Money Market Funds," CEPR Discussion Papers 9906, C.E.P.R. Discussion Papers.
    2. Gabriele Foà & Leonardo Gambacorta & Luigi Guiso & Paolo Emilio Mistrulli, 2015. "The Supply Side of Household Finance," EIEF Working Papers Series 1507, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2015.
    3. Ronald McKinnon, 2013. "Hot Money Flows, Commodity Price Cycles and Financial Repression in the USA and China: The Consequences of Near-zero US Interest Rates," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 21(4), pages 1-13, July.
    4. McKinnon, Ronald & Liu, Zhao, 2013. "Hot Money Flows, Commodity Price Cycles, and Financial Repression in the US and the People’s Republic of China: The Consequences of Near Zero US Interest Rates," Working Papers on Regional Economic Integration 107, Asian Development Bank.
    5. Lawrence Schmidt & Allan Timmermann & Russ Wermers, 2016. "Runs on Money Market Mutual Funds," American Economic Review, American Economic Association, pages 2625-2657.
    6. Parlatore, Cecilia, 2015. "Fragility in money marketfunds: sponsor support and regulation," Working Paper Series 1772, European Central Bank.
    7. Joe Peek & Eric Rosengren, 2016. "Credit Supply Disruptions: From Credit Crunches to Financial Crisis," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 81-95, October.
    8. Schmidt, Lawrence & Timmermann, Allan & Wermers, Russ, 2014. "Runs on money market mutual funds," CFR Working Papers 12-05 [rev.], University of Cologne, Centre for Financial Research (CFR).

    More about this item

    Keywords

    Money market funds ; Mutual funds ; Global financial crisis;

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