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Money market funds in Europe and financial stability

Author

Listed:
  • Julie Ansidei
  • Elias Bengtsson
  • Daniele Frison
  • Giles Ward

Abstract

Money market funds (MMFs) are investment funds whose primary objectives are to maintain the principal value of the funds and offer a return in line with money market rates, while providing daily liquidity to their investors. In Europe, MMFs manage approximately EUR 1 trillion in assets, with three countries (France, Ireland and Luxembourg) representing an aggregate market share of over 90%. MMFs were at the heart of dramatic episodes of the financial crisis of 2007-08, prompting regulators on both sides of the Atlantic to extensively review the regulatory framework applicable to them. In Europe, new guidelines were adopted in 2010, imposing strict standards in terms of the credit quality and maturity of underlying securities and better disclosure to investors. Although these initiatives are considered to have considerably improved MMF regulation, discussions are still ongoing, both in the United States (US) and at the international level, as to how to reduce the systemic risks associated with MMFs and, in particular, their vulnerability to runs. The Financial Stability Board (FSB) has identified MMFs as a key component of the shadow banking system and has asked the International Organization of Securities Commissions (IOSCO) to submit policy recommendations by July 2012 for further regulatory reform of such funds. The purpose of this occasional paper is to provide a first assessment of the systemic importance of MMFs within the European context, as well as of the main areas of risk, policy implications and the possible role for the European Systemic Risk Board (ESRB). JEL Classification: G15, G18

Suggested Citation

  • Julie Ansidei & Elias Bengtsson & Daniele Frison & Giles Ward, 2012. "Money market funds in Europe and financial stability," ESRB Occasional Paper Series 01, European Systemic Risk Board.
    • Handle: RePEc:srk:srkops:201201
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    File URL: https://www.esrb.europa.eu/pub/pdf/occasional/20120622_occasional_paper_1.pdf
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    References listed on IDEAS

    as
    1. Mr. Zoltan Pozsar, 2011. "Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System," IMF Working Papers 2011/190, International Monetary Fund.
    2. Chernenko, Sergey & Sunderam, Adi, 2012. "The Quiet Run of 2011: Money Market Funds and the European Debt Crisis," Working Paper Series 2012-04, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    3. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March.
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    Cited by:

    1. Mr. Manmohan Singh, 2012. "Puts in the Shadow," IMF Working Papers 2012/229, International Monetary Fund.
    2. Bua, Giovanna & Dunne, Peter G. & Sorbo, Jacopo, 2019. "Money Market Funds and Unconventional Monetary Policy," Research Technical Papers 7/RT/19, Central Bank of Ireland.
    3. Antoine Bouveret & Antoine Martin & Patrick E. McCabe, 2022. "Money Market Fund Vulnerabilities: A Global Perspective," Finance and Economics Discussion Series 2022-012, Board of Governors of the Federal Reserve System (U.S.).
    4. Capotă, Laura-Dona & Grill, Michael & Molestina Vivar, Luis & Schmitz, Niklas & Weistroffer, Christian, 2022. "Is the EU money market fund regulation fit for purpose? Lessons from the COVID-19 turmoil," Working Paper Series 2737, European Central Bank.

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    Keywords

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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