Do Non-Banks Need Access to the Lender of Last Resort? Evidence from Fund Runs

Abstract

Are central bank tools effective in reaching non-banks with no access to the lender-of-last-resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared to other banks.

Keywords: Investment funds, lender of last resort, market maker of last resort, asset purchases, COVID-19 liquidity crisis

JEL Classification: E58, G01, G10, G21, G23