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RWP 21-07, August 2021

We argue that bank holding companies (BHCs) extend shadow insurance to the prime institutional money market funds (PI-MMFs) they sponsor and that PI-MMFs price this shadow insurance by charging investors significantly higher expense ratios and paying lower net yields. We provide evidence that after September 2008, expense ratios at BHC-sponsored PI-MMFs increased more than at non-BHC-sponsored PI-MMFs. Despite higher expense ratios, BHC-sponsored PI-MMFs did not experience larger redemptions than non-BHC-sponsored PI-MMFs. In addition, we show that expenses ratios increased with BHCs’ financial strength and the likelihood of their support; however, this expense ratio differential disappeared after the 2016 MMF reform.

JEL classification: G2, G21, G23, G28, H12, H81

Article Citation

  • Stefan Jacewitz, Haluk Unal, and Chengjun Wu. 2021. “Shadow Insurance? Money Market Fund Investors and Bank Sponsorship.” Federal Reserve Bank of Kansas City, Research Working Paper no. 21-07, August. Available at External Linkhttps://doi.org/10.18651/RWP2021-07

Author

Stefan A. Jacewitz

Assistant Vice President

Stefan Jacewitz serves as an Assistant Vice President and economist at the Federal Reserve Bank of Kansas City, where he is the oversight officer of the Banking and Financial Ma…

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