Emmanuel Faïk

25 May 2020

FINANCIAL STABILITY REVIEW - BOX

Recent stress in money market funds has exposed potential risks for the wider financial system

• Miguel Boucinha
• Laura Capotă
• Katharina Cera
• Emmanuel Faïk
• Jean-Baptiste Galléty
• Margherita Giuzio
• Maciej Grodzicki
• Isabel Kerner
• Simon Kördel
• Luis Molestina Vivar
• Giulio Nicoletti
• Ellen Ryan
• Christian Weistroffer

Financial Stability Review Issue 1, 2020

English

Details

Abstract

Euro area money market funds (MMFs) provide short-term credit to banks and non-financial corporations (NFCs) through purchases of commercial paper (CP). MMFs also play an important role in non-banks’ cash and liquidity management, given that the funds offer stable value and the possibility to redeem at short notice. As the coronavirus crisis deepened, euro area MMFs experienced large outflows and a number of them had difficulties in raising sufficient cash from maturing assets and liquid positions. Stress in MMFs can impair the financial system’s and the real economy’s access to short-term funding and liquidity during crises. Monetary policy action helped to improve financial market conditions more broadly, thereby also alleviating liquidity strains in the MMF sector.

JEL Code

G10 : Financial Economics→General Financial Markets→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors