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Liquidity and shadow banking

Author

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  • Aftab, Zary
  • Varotto, Simone

Abstract

Using a unique dataset of the detailed portfolio holdings of US money market funds, we study the behaviour of such funds in the context of the European sovereign debt crisis. These important players in the shadow banking sector were particularly vulnerable to liquidity shocks before the introduction of minimum liquidity requirements. We analyse the impact of these requirements and show that they have considerably increased the resilience of prime funds. We also see that prime funds increase their liquidity to counter expected investors’ redemptions in crisis periods. However, liquidity does not shelter risky funds from lower inflows.

Suggested Citation

  • Aftab, Zary & Varotto, Simone, 2019. "Liquidity and shadow banking," Journal of International Money and Finance, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:jimfin:v:99:y:2019:i:c:s0261560619304693
    DOI: 10.1016/j.jimonfin.2019.102080
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    Citations

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    Cited by:

    1. Abbas Hejri, 2022. "On the recent developments of mutual funds with fixed‐income holdings: a systematic review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2313-2338, June.
    2. Subroto Rapih, 2021. "Shadow banking and cross-border capital inflows: Does the development level of financial institutions matter?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(3), pages 331-355, September.

    More about this item

    Keywords

    Sovereign debt crisis; Shadow banking; Liquidity; Money market fund; Financial regulation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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