You Can't Always Get What You Want (Where You Want It): Cross-Border Effects of the US Money Market Fund Reform

Abstract

This paper documents significant cross-border effects of the 2014 US money market fund (MMF) reform on euro area MMFs. As US-based prime funds became less money-like due to the reform, euro area-based prime funds received large inflows from foreign investors. These cross-border flows were motivated by the search for stable NAV instruments. Consistent with an easing of competitive pressure, euro area prime MMFs reduced their risk-taking. Lastly, the EU MMF regulation, a weaker regulatory intervention compared to the US reform, did not lead to a reversal of the documented cross-border flows.

Keywords: cross-border effects, regulation, money market funds, risk-taking

JEL Classification: E41, G23, G28