Liquidity Support in Financial Institutions

54 Pages Posted: 29 Jul 2020 Last revised: 18 May 2021

See all articles by Falko Fecht

Falko Fecht

Frankfurt School of Finance & Management

Egemen Genc

University of Illinois at Chicago

Yigitcan Karabulut

Frankfurt School of Finance & Management; CEPR

Date Written: July 13, 2020

Abstract

We document a novel support mechanism by banks through coordinating the investments of their clients in their affiliated mutual funds that experience excessive withdrawals. New inflows from bank clients limit the adverse effects of financial distress on fund performance and further mitigate strategic complementarities in investor redemption decisions. Thus, banks serve as a coordination device for the investments of their clients and enable them to earn a premium from participating in this support mechanism. Overall, our results demonstrate the existence of a mutual support system within financial institutions and highlight the potential benefits of bank-affiliation for fund investors.

Keywords: Bank-Affiliated Mutual Funds, Internal Capital Markets, Liquidity Provision, Financial Fragility, Fund Flows

JEL Classification: G21, G23

Suggested Citation

Fecht, Falko and Genc, Egemen and Karabulut, Yigitcan, Liquidity Support in Financial Institutions (July 13, 2020). Available at SSRN: https://ssrn.com/abstract=3650373 or http://dx.doi.org/10.2139/ssrn.3650373

Falko Fecht

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Egemen Genc (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Yigitcan Karabulut

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

CEPR ( email )

London
United Kingdom

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

Paper statistics

Downloads
82
Abstract Views
544
rank
369,428
PlumX Metrics