Mutual Funding

74 Pages Posted: 22 Dec 2014 Last revised: 26 Jan 2019

See all articles by Javier Gil-Bazo

Javier Gil-Bazo

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE)

Peter Hoffmann

European Central Bank (ECB) - Directorate General Research

Sergio Mayordomo

Banco de España

Date Written: January 2019

Abstract

Using data on Spanish mutual funds, we show that bank-affiliated funds provide funding support to their parent company via purchases of bonds in the primary market. Funding from affiliated funds increases when it is most valuable, i.e., in times of financial stress and to riskier banks with limited access to funding. Funding support is not limited to bonds but also takes place through bank deposits and purchases of short-term paper. These trades benefit banks at the expense of their affiliated mutual fund investors. To minimize the negative impact on their asset management business, banks steer funding support towards funds without a performance fee and funds that cater to the less-performance sensitive investors. Finally, we provide evidence that the ability to use affiliated funds as a source of funding enabled Spanish banks to limit credit rationing to the nonfinancial sector during the 2008-2012 period.

Keywords: Financial Conglomerates, Mutual Funds, Agency Conflicts, Financial Crisis, Sovereign Debt Crisis

JEL Classification: G23, G32, G21

Suggested Citation

Gil-Bazo, Javier and Hoffmann, Peter and Mayordomo, Sergio, Mutual Funding (January 2019). Available at SSRN: https://ssrn.com/abstract=2541458 or http://dx.doi.org/10.2139/ssrn.2541458

Javier Gil-Bazo

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Peter Hoffmann

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Sergio Mayordomo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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