Reciprocity in Shadow Bank Lending: Evidence from the Cross-Holding Relation in Money Market Funds
59 Pages Posted: 25 Aug 2016 Last revised: 7 Oct 2021
Date Written: October 7, 2021
This paper documents a reciprocal cross-holding relation (CHR) between financial conglomerates: banks mutually holding each other’s money market instruments through their affiliated money market funds (MMFs). Using novel MMF holdings data, this study shows that U.S. banks increased their MMFs’ portfolio weights on bilateral-connected European financial firms after Moody’s review of European banks in mid-2011—a unique period in which MMFs generally reduced their exposure to European issuers to avoid further redemptions. We provide evidence that this bias represents reciprocity between the bilaterally connected financial firms. Issuer- or fund-characteristics do not fully explain the results.
Keywords: Shadow Banking, Financial Crisis, Reciprocity, Money Market Funds
JEL Classification: G21, G32, G10, G14
Suggested Citation: Suggested Citation