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

See all articles by Ai He

Ai He

University of South Carolina - Darla Moore School of Business

Date Written: October 7, 2021

Abstract

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

He, Ai, Reciprocity in Shadow Bank Lending: Evidence from the Cross-Holding Relation in Money Market Funds (October 7, 2021). Available at SSRN: https://ssrn.com/abstract=2826906 or http://dx.doi.org/10.2139/ssrn.2826906

Ai He (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

HOME PAGE: http://www.aihefinance.com/

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