Discussion Paper
Pricing Liquidity without Preemptive Runs
Abstract: Prime money market funds (MMFs) are vulnerable to runs. This was dramatically illustrated in September 2008 and March 2020, when massive outflows from prime MMFs worsened stress in the short-term funding markets and eased only after taxpayer-supported interventions by the Treasury and the Federal Reserve. In this post, we describe how mechanisms like swing pricing that charge a price for liquidity can reduce the vulnerability of prime MMFs without triggering preemptive runs.
Keywords: MMF; swing pricing; liquidity; preemptive; preemptive runs;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2022-01-31
Number: 20220131