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
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