Bank Balance Sheet Constraints and Mutual Fund Fragility

51 Pages Posted: 11 Jun 2021 Last revised: 30 Sep 2023

See all articles by Johannes Breckenfelder

Johannes Breckenfelder

European Central Bank (ECB) - Financial Research

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 31, 2021


Using European data, we develop a methodology to connect individual bonds and dealer banks, utilizing two intuitive and striking patterns: the home bias and the persistence of underwriting relationships. Building on these connections, we show that the introduction of the leverage ratio for European banks had a large impact on bond liquidity. We also show that the bond mutual funds’ outflows following the 2020 pandemic outbreak affected substantially more mutual funds with larger exposures to dealer banks’ balance sheet constraints. These findings highlight the importance of interactions between the regulation of banks and financial fragility of non-banks.

Keywords: Bond liquidity; market-making; capital requirements; leverage ratio; mutual funds; COVID-19

JEL Classification: G12, G18, G21

Suggested Citation

Breckenfelder, Johannes and Ivashina, Victoria, Bank Balance Sheet Constraints and Mutual Fund Fragility (May 31, 2021). Available at SSRN: or

Johannes Breckenfelder (Contact Author)

European Central Bank (ECB) - Financial Research ( email )

Sonnemannstrasse 20
D-60314 Frankfurt am Main


Victoria Ivashina

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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