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Macroprudential regulation of investment funds

Author

Listed:
  • di Iasio, Giovanni
  • Kaufmann, Christoph
  • Wicknig, Florian

Abstract

The investment fund sector, the largest component of the non-bank financial system, is growing rapidly and the economy is becoming more reliant on investment fund financial intermediation. This paper builds a dynamic stochastic general equilibrium model with banks and investment funds. Without regulation, investment funds hold insuÿcient amounts of liquid bank deposits and must sell bonds when hit by large redemptions. Even when accounting for side effects related to a reduction of deposits held by households, a macroprudential liquidity requirement improves welfare by reducing bond liquidation and by increasing macroeconomic resilience to financial shocks as in March 2020. JEL Classification: E44, G18, G23

Suggested Citation

  • di Iasio, Giovanni & Kaufmann, Christoph & Wicknig, Florian, 2022. "Macroprudential regulation of investment funds," Working Paper Series 2695, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222695
    Note: 2857527
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2695~22731e2f05.en.pdf
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    References listed on IDEAS

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    Cited by:

    1. Dekker, Lennart & Molestina Vivar, Luis & Wedow, Michael & Weistroffer, Christian, 2023. "Liquidity buffers and open-end investment funds: containing outflows and reducing fire sales," Working Paper Series 2825, European Central Bank.
    2. Gebauer, Stefan & Mazelis, Falk, 2023. "Macroprudential regulation and leakage to the shadow banking sector," European Economic Review, Elsevier, vol. 154(C).
    3. Lubello, Federico & Rouabah, Abdelaziz, 2024. "Securitization, shadow banking system and macroprudential regulation: A DSGE approach," Economic Modelling, Elsevier, vol. 131(C).
    4. Dekker, Lennart & Molestina Vivar, Luis & Wedow, Michael & Weistroffer, Christian, 2024. "Liquidity buffers and open-end investment funds: Containing outflows or reducing fire sales?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).

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    More about this item

    Keywords

    liquidity regulation; macroprudential policy; non-bank financial intermediation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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