Liquidity Support and Distress Resilience in Bank-Affiliated Mutual Funds

38 Pages Posted: 14 Oct 2020

See all articles by Giulio Bagattini

Giulio Bagattini

Frankfurt School of Finance & Management

Falko Fecht

Frankfurt School of Finance & Management

Angela Maddaloni

European Central Bank (ECB)

Date Written: October 13, 2020

Abstract

We study whether the stability of mutual funds and the propensity of a run among investors depend on the ownership structure. Flows of funds run by banks or by firms that belong to the same financial group as a bank are less volatile and less sensitive to bad past performance. This enables bank-affiliated funds to better weather distress and to hold lower precautionary cash buffers in comparison with their unaffiliated peers. Banks provide liquidity support to distressed affiliated funds increasing their stakes in funds that are experiencing large outflows. We find that liquidity support and other benefits of bank affiliation are stronger if the parent bank is more liquid and better capitalised. Analyzing the aftermath of two exogenous shocks to financial markets -- the Brexit referendum and political uncertainty in Italy -- we show that distress in the banking system spills over to the mutual fund sector via ownership links.

Suggested Citation

Bagattini, Giulio and Fecht, Falko and Maddaloni, Angela, Liquidity Support and Distress Resilience in Bank-Affiliated Mutual Funds (October 13, 2020). Available at SSRN: https://ssrn.com/abstract=3710511 or http://dx.doi.org/10.2139/ssrn.3710511

Giulio Bagattini

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Falko Fecht

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Angela Maddaloni (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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