Money Market Fund Vulnerabilities: A Global Perspective

Bouveret, Antoine; Martin, Antoine; McCabe, Patrick E.

doi:10.2139/ssrn.4061247

Cited by 3 publications

(2 citation statements)

References 21 publications

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“…Similar flight-to-safety dynamics are documented in the MMF literature (Bouveret et al, 2022;La Spada, 2020, 2021). Following stress events, money fund investors run on the more exposed prime funds and flee to the safer government MMFs.…”

Section: Flights To Safety In Stablecoinssupporting

confidence: 64%

Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Anadu,

Azar,

Cipriani

et al. 2023

Federal Reserve Bank of Boston Research Department Working Papers

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Similar to the more traditional money market funds (MMFs), stablecoins aim to provide investors with safe, money-like assets. We investigate similarities and differences between these two investment products. Like MMFs, stablecoins suffer from ``flight-to-safetyʹʹ dynamics. We document net flows from riskier to safer stablecoins on days of crypto-market stress and estimate a discrete ``break-the-buckʹʹ threshold of $1, below which stablecoin redemptions accelerate. We then focus on two specific stablecoin runs, in 2022 and 2023, showing that the same flight-tosafety dynamics also characterized these episodes. Finally, as flight-to-safety flows occur within MMF families, stablecoin flows tend to occur within blockchains.

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Section: Flights To Safety In Stablecoinssupporting

confidence: 64%

Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Anadu,

Azar,

Cipriani

et al. 2023

Federal Reserve Bank of Boston Research Department Working Papers

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“…There have been numerous examples of liquidity risk in MMFs crystalising, see Bouveret et al (2022) for a history. We are not aware of any models that capture the potential for funding liquidity contagion as a result of redemption suspensions at money market funds.…”

Section: Direct Contagion Via the Funding-liquidity Channelmentioning

confidence: 99%

Macro-Prudential Stress Test Models: A Survey

Aikman

2023

IMF Working Papers

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Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Anadu,

Azar,

Cipriani

et al. 2023

Staff Reports (Federal Reserve Bank of New York)

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Stablecoins and money market funds both seek to provide investors with safe, money-like assets but are vulnerable to runs in times of stress. In this paper, we investigate similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020. We document that, similarly to money market fund investors, stablecoin investors engage in flight to safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in money market funds, run risk has historically materialized only in prime funds, with stablecoins, runs occurred in different stablecoin types across the 2022 and 2023 episodes. We also show that, similarly to intrafamily flows in money market funds, stablecoin flows tend to be within blockchains. Finally, for stablecoins, we estimate a discrete “break-the-buck” threshold of $0.99, below which redemptions accelerate.

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Money Market Fund Vulnerabilities: A Global Perspective

Cited by 3 publications

References 21 publications

Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Macro-Prudential Stress Test Models: A Survey

Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

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