Non-bank liquidity provision to firms: Fund runs and central bank interventions

36 Pages Posted: 2 May 2022 Last revised: 2 Jan 2023

See all articles by Johannes Breckenfelder

Johannes Breckenfelder

European Central Bank (ECB) - Financial Research

Glenn Schepens

European Central Bank (ECB)

Date Written: November 9, 2022

Abstract

We study the determinants of the liquidity dry-up in the commercial paper market in March 2020 and the role of central bank interventions in reviving the market. We show that the dry-up was driven by money market funds (MMFs) - the key investors in the commercial paper market - that faced investor outflows. Using security-level fund holdings, we establish that the liquidity crisis in MMFs affected corporate funding: nonfinancial companies were less likely to issue commercial paper if their commercial paper was held by funds experiencing larger investor outflows. We show that the revival of the market was driven by the ECB’s intervention in the European non-financial commercial paper market leading to better terms and conditions for eligible firms.

Keywords: Commercial paper; money market funds; central bank intervention; asset purchases; COVID-19

JEL Classification: G11; G23; G32; E58

Suggested Citation

Breckenfelder, Johannes and Schepens, Glenn, Non-bank liquidity provision to firms: Fund runs and central bank interventions (November 9, 2022). Available at SSRN: https://ssrn.com/abstract=4083190 or http://dx.doi.org/10.2139/ssrn.4083190

Johannes Breckenfelder (Contact Author)

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

Sonnemannstrasse 20
D-60314 Frankfurt am Main
Germany

HOME PAGE: http://johannesbreckenfelder.eu/

Glenn Schepens

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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