Liberty Street Economics: Pricing Liquidity without Preemptive Runs

F E D E R A L   R E S E R V E   B A N K   o f   N E W  Y O R K LIBERTY STREET ECONOMICS   Pricing Liquidity without Preemptive Runs   Marco Cipriani, Antoine Martin, and Patrick McCabe   Prime money market funds (MMFs) are vulnerable to runs. This was dramatically illustrated in September 2008 and March 2020, when massive outflows from prime MMFs worsened stress in the short-term funding markets and eased only after taxpayer-supported interventions by the Treasury and the Federal Reserve. The authors describe how mechanisms, like swing pricing, that charge a price for liquidity reduce the vulnerability of prime MMFs without triggering preemptive runs. READ MORE

 

 

 

 

 

 

 

 

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