Události

Čt 26.05.2022

Marie Hoerova (European Central Bank) "Do non-banks need access to the lender of last resort? Evidence from fund runs"

Marie Hoerova, Ph.D.

European Central Bank

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Authors: Marie Hoerova and Johannes Breckenfelder

Abstract: When a liquidity crisis hits non-bank financial intermediaries, which central bank interventions. When a liquidity crisis hits non-bank financial intermediaries, which central bank interventions help? We show that investment funds faced large investor outflows as the COVID-19 shock hit and assess the effectiveness of central bank asset purchases and additional liquidity provision to banks in alleviating the crisis. We use detailed fund-level data and proprietary data on bank take-ups inliquidity-providing operations and bank-fund repo transactions. Analyzing asset purchases, we find that funds with higher shares of assets eligible for central bank purchases in their portfolio before the COVID-19 crisis saw their performance improve by 3.7% and outflows decrease by 63% relative to otherwise similar funds. Analyzing repo activity, we find that additional central bank liquidity provision supported bank repo lending to funds, by alleviating bank liquidity constraints. Banks more exposed to the March 2020 liquidity crisis that took up central bank liquidity increased their repo transactions with funds by 3% to 4% compared to other banks. Our results suggest that central bank interventions were effective in stopping fire-sale dynamics and staving off runs onnon-bank financial intermediaries, even though funds did not have direct access to the lender of last resort.

JEL Classification: E58, G01, G10, G21, G23
Keywords: Investment funds, COVID-19 liquidity crisis, lender of last resort, central bankInvestment funds, COVID-19 liquidity crisis, lender of last resort, central bankliquidity provision, asset purchases

Full Text: Do non-banks need access to the lender of last resort? Evidence from fund runs