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Keywords:runs 

Report
COVID Response: The Money Market Mutual Fund Facility

In this article, we discuss the run on prime money market funds (MMFs) that occurred in March 2020, at the onset of the COVID-19 pandemic, and describe the Money Market Mutual Fund Liquidity Facility (MMLF), which the Federal Reserve established in response to it. We show that the MMLF, like a similarly structured Federal Reserve facility established during the 2008 financial crisis, was an important tool in stemming investor outflows from MMFs and restoring calm in short-term funding markets. The usage of the facility was higher by funds that suffered larger outflows. After the facility’s ...
Staff Reports , Paper 980

Working Paper
Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Stablecoins and money market funds both seek to provide investors with safe, money-like assets but are vulnerable to runs in times of stress. In this paper, we investigate similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020. We document that, similar to money market fund investors, stablecoin investors engage in flight-to-safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in money market funds run risk has ...
Supervisory Research and Analysis Working Papers , Paper SRA 23-02

Working Paper
Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Similar to the more traditional money market funds (MMFs), stablecoins aim to provide investors with safe, money-like assets. We investigate similarities and differences between these two investment products. Like MMFs, stablecoins suffer from “flight-to-safety” dynamics: we document net flows from riskier to safer stablecoins on days of crypto-market stress and estimate a discrete “break-the-buck” threshold of $1, below which stablecoin redemptions accelerate. We then focus on two specific stablecoin runs, in 2022 and 2023, showing that the same flight-to-safety dynamics also ...
Supervisory Research and Analysis Working Papers , Paper SRA 23-02

Report
Gates, fees, and preemptive runs

We build a model of a financial intermediary, in the tradition of Diamond and Dybvig (1983), and show that allowing the intermediary to impose redemption fees or gates in a crisis—a form of suspension of convertibility—can lead to preemptive runs. In our model, a fraction of investors (depositors) can become informed in advance about a shock to the return on the intermediary’s assets. Later, the informed investors learn the realization of the shock and choose their redemption behavior based on this information. We prove two results: First, there are situations in which informed ...
Staff Reports , Paper 670

Report
The minimum balance at risk: a proposal to mitigate the systemic risks posed by money market funds

This paper introduces a proposal for money market fund (MMF) reform that could mitigate systemic risks arising from these funds by protecting shareholders, such as retail investors, who do not redeem quickly from distressed funds. Our proposal would require that a small fraction of each MMF investor's recent balances, called the "minimum balance at risk" (MBR), be demarcated to absorb losses if the fund is liquidated. Most regular transactions in the fund would be unaffected, but redemptions of the MBR would be delayed for thirty days. A key feature of the proposal is that large redemptions ...
Staff Reports , Paper 564

Report
The fragility of short-term secured funding markets

This paper develops a model of financial institutions that borrow short term and invest in long-term assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct liquidity, collateral, and asset liquidation constraints, which determine whether a run can occur as a result of changing market expectations. We show that the extent to which borrowers can ward off an individual run depends on whether it has sufficient liquidity, collateral, and asset liquidation capacity. These ...
Staff Reports , Paper 630

Discussion Paper
Stablecoins and Crypto Shocks

In a previous post, we described the rapid growth of the stablecoin market over the past few years and then discussed the TerraUSD stablecoin run of May 2022. The TerraUSD run, however, is not the only episode of instability experienced by a stablecoin. Other noteworthy incidents include the June 2021 run on IRON and, more recently, the de-pegging of USD Coin’s secondary market price from $1.00 to $0.88 upon the failure of Silicon Valley Bank in March 2023. In this post, based on our recent staff report, we consider the following questions: Do stablecoin investors react to broad-based ...
Liberty Street Economics , Paper 20240308

Report
Sophisticated and Unsophisticated Runs

What makes investors run? We show that during the March 2020 run on prime money market funds, institutional and retail investors behaved in dramatically different ways: sophisticated institutional investors ran preemptively based on fundamentals; unsophisticated retail investors ran based on herd-like informational spillovers, leaving funds belonging to families with large institutional outflows. We show that based on website traffic, institutional investors acquired more information on fund portfolios; furthermore, we show that within-family institutional outflows were informative to retail ...
Staff Reports , Paper 956

Working Paper
Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Similar to the more traditional money market funds (MMFs), stablecoins aim to provide investors with safe, money-like assets. We investigate similarities and differences between these two investment products. Our key finding is that, like MMFs, stablecoins also suffer from “flight-to-safety” dynamics. This is manifested in net flows from riskier to safer stablecoins on days of crypto-market stress. The same flight-to-safety dynamics also characterized flows during stablecoin runs, as exemplified by the two most severe episodes in 2022 and 2023. Furthermore, as flight-to-safety flows occur ...
Supervisory Research and Analysis Working Papers , Paper SRA 23-02

Report
Money Market Fund Vulnerabilities: A Global Perspective

Money market funds (MMFs) are popular around the world, with over $9 trillion in assets under management globally. From their origins in the 1970s, MMFs have operated in a niche between the capital markets and the banking system, as investment funds that offer private money-like assets with features similar to those of bank deposits. Hence, they are vulnerable to runs that arise from liquidity transformation and from sudden changes in investor perceptions of the funds’ ability to serve as money-like assets. Since 2000, MMF runs have occurred in many countries and under many regulatory ...
Staff Reports , Paper 1009

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