Discussion Paper

Were Banks Exposed to Sell-offs by Open-End Funds during the Covid Crisis?

Abstract: Should open-end mutual funds experience redemption pressures, they may be forced to sell assets, thus contributing to asset price dislocations that in turn could be felt by other entities holding similar assets. This fire-sale externality is a key rationale behind proposed and implemented regulatory actions. In this post, I quantify the spillover risks from fire sales, and present some preliminary results on the potential exposure of U.S. banking institutions to asset fire sales from open-end funds.

Keywords: open end funds; banks; liquidity; COVID-19; bank holding companies (BHCs);

JEL Classification: G2; G21;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2021-10-18

Number: 20211018