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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 Link


Stefan A. Jacewitz

Research and Policy Officer

Stefan Jacewitz is a Research and Policy Officer at the Federal Reserve Bank of Kansas City. He joined the Economic Research Department in April 2021 after serving 12 years at th…