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The Review of Corporate Finance Studies Vol. 11 No. 2 2022

Shadow Insurance? Money Market Fund Investors and Bank Sponsorship

Stefan Jacewitz1; Haluk Unal2; Chengjun Wu3

1 Federal Reserve Bank of Kansas City, USA · 2 R. H. Smith School of Business, University of Maryland and FDIC-CFR, USA · 3 R. H. Smith School of Business, University of Maryland, USA

Abstract

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 expense ratios increased with BHCs’ financial strength and the likelihood of their support; however, this expense ratio differential disappeared after the 2016 MMF reform.

DOI
10.1093/rcfs/cfab027
Volume
11
Issue
2
Pages
414-456
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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