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Liquidity support and distress resilience in bank-affiliated mutual funds

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  • Bagattini, Giulio
  • Fecht, Falko
  • Maddaloni, Angela

Abstract

Flows of funds run by banks or by firms that belong to the same financial group as a bank are less volatile and less sensitive to bad past performance. This enables bank-affiliated funds to better weather distress and to hold lower precautionary cash buffers in comparison with their unaffiliated peers. Banks provide liquidity support to distressed affiliated funds by buying shares of those funds that are experiencing large outflows. This, in turn, diminishes the severity of strategic complementarities in investors' redemptions. Liquidity support and other benefits of bank affiliation are conditional on the financial health of the parent company. Distress in the banking system spills over to the mutual fund sector via ownership links. Our research highlights substantial dependencies between the banking system and the asset management industry, and identifies an important channel via which financial stability risks depend on the organisational structure of the financial sector.

Suggested Citation

  • Bagattini, Giulio & Fecht, Falko & Maddaloni, Angela, 2023. "Liquidity support and distress resilience in bank-affiliated mutual funds," SAFE Working Paper Series 385, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:385
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    Cited by:

    1. Sarmiento Paipilla, Miguel, 2024. "The Transmission of Non-Banking Liquidity Shocks to the Banking Sector," Discussion Paper 2024-011, Tilburg University, Center for Economic Research.
    2. Sarmiento Paipilla, Miguel, 2024. "The Transmission of Non-Banking Liquidity Shocks to the Banking Sector," Other publications TiSEM c8f68d8f-0035-4529-95af-1, Tilburg University, School of Economics and Management.
    3. Anna Burova & Tatiana Grishina & Natalia Makhankova, 2024. "Measurement of auxiliary indicators of aggregate interest rates on loans to non-financial organisations," Bank of Russia Working Paper Series wps137, Bank of Russia.

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    More about this item

    Keywords

    Mutual funds; Bank affiliation; Redemptions;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G3 - Financial Economics - - Corporate Finance and Governance

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