Money Market Funds in Europe and Financial Stability

46 Pages Posted: 5 Nov 2020

See all articles by Julie Ansidei

Julie Ansidei

affiliation not provided to SSRN

Elias Bengtsson

Halmstad University; University of Gothenburg - School of Business, Economics and Law

Daniele Frison

affiliation not provided to SSRN

Giles Ward

Financial Services Authority

Date Written: June, 2012

Abstract

Money market funds (MMFs) are investment funds whose primary objectives are to maintain the principal value of the funds and offer a return in line with money market rates, while providing daily liquidity to their investors. In Europe, MMFs manage approximately EUR 1 trillion in assets, with three countries (France, Ireland and Luxembourg) representing an aggregate market share of over 90%. MMFs were at the heart of dramatic episodes of the financial crisis of 2007-08, prompting regulators on both sides of the Atlantic to extensively review the regulatory framework applicable to them. In Europe, new guidelines were adopted in 2010, imposing strict standards in terms of the credit quality and maturity of underlying securities and better disclosure to investors. Although these initiatives are considered to have considerably improved MMF regulation, discussions are still ongoing, both in the United States (US) and at the international level, as to how to reduce the systemic risks associated with MMFs and, in particular, their vulnerability to runs. The Financial Stability Board (FSB) has identified MMFs as a key component of the shadow banking system and has asked the International Organization of Securities Commissions (IOSCO) to submit policy recommendations by July 2012 for further regulatory reform of such funds. The purpose of this occasional paper is to provide a first assessment of the systemic importance of MMFs within the European context, as well as of the main areas of risk, policy implications and the possible role for the European Systemic Risk Board (ESRB).

Keywords: ESRB, financial stability, money market funds, shadow banking

JEL Classification: G15, G18

Suggested Citation

Ansidei, Julie and Bengtsson, Elias and Frison, Daniele and Ward, Giles, Money Market Funds in Europe and Financial Stability (June, 2012). ESRB: Occasional Paper Series No. 2012/01, Available at SSRN: https://ssrn.com/abstract=3723331 or http://dx.doi.org/10.2139/ssrn.3723331

Julie Ansidei (Contact Author)

affiliation not provided to SSRN

Elias Bengtsson

Halmstad University ( email )

301 18 Halmstad
Sweden

University of Gothenburg - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Daniele Frison

affiliation not provided to SSRN

No Address Available

Giles Ward

Financial Services Authority

25 The North Colonnade
Canary Wharf
London E14 5HS
United Kingdom

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