Providing safety in a rush: How Did Shadow Banks Respond to a $1 Trillion Shock

42 Pages Posted: 5 Jun 2020 Last revised: 1 Mar 2021

See all articles by Stefan Gissler

Stefan Gissler

Board of Governors of the Federal Reserve System

Marco Macchiavelli

Board of Governors of the Federal Reserve System

Borghan Narajabad

Board of Governors of the Federal Reserve System

Date Written: January 8, 2021

Abstract

During a flight to liquidity, investors demand large amounts of government-backed safe assets in a rush. The sluggish reaction of the public supply of safe assets opens up a role for government-sponsored shadow banks. We exploit exogenous changes in both demand and supply of safe assets from the 2014 money fund reform and the 2015 debt limit. We find that shadow banks act as a substitute as well as a complement to public supply during a flight to liquidity. Our findings carry over to the dash for cash at the onset of the Covid-19 pandemic

Keywords: money markets, safe assets, shadow banks, interest rate risk, covid-19

JEL Classification: G23, G28, E41

Suggested Citation

Gissler, Stefan and Macchiavelli, Marco and Narajabad, Borghan, Providing safety in a rush: How Did Shadow Banks Respond to a $1 Trillion Shock (January 8, 2021). Available at SSRN: https://ssrn.com/abstract=3595417 or http://dx.doi.org/10.2139/ssrn.3595417

Stefan Gissler (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Marco Macchiavelli

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Borghan Narajabad

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
35
Abstract Views
280
PlumX Metrics