Abstract
Using a unique dataset of detailed portfolio holdings of US money market funds, we study the funds’ behavior in the context of the European sovereign debt crisis. These important players in the shadow banking sector were particularly vulnerable to liquidity shocks before the introduction of minimum liquidity requirements. We analyze the impact of these requirements and show that they have considerably increased the resilience of prime funds. We also see that funds increase their liquidity to counter uncertainty in investors’ redemptions. But, liquidity does not shelter risky funds from lower inflows.
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