The Atlanta Fed's 2012 Financial Markets Conference, Financial Reform: The Devil's in the Details" features several sessions involving money market funds and "shadow banking" (see yesterday's "News" on the Bernanke speech). But today, we link to a paper on German money funds entitled, "Sturm und Drang in money market funds: when money market funds cease to be narrow." The Abstract says, "This paper investigates the returns and flows of German money market funds before and during the liquidity crisis of 2007/2008. The main findings of this paper are: In liquid times money market funds enhanced their returns by investing in less liquid papers. By doing so they outperformed other funds as long as liquidity in the market was high. Investing in less liquid assets, however, widens the narrow structure of money market funds and makes them vulnerable to runs. During the shortening of liquidity caused by the subprime crisis illiquid funds experienced runs, while more liquid funds functioned as a safe haven." See also the Powerpoint on this paper as well as the presentation from ICI's Sean Collins'. Watch for more news from the Atlanta Fed conference tomorrow as a "Policy session" on Money Market Mutual Funds, including panelists Eric Rosengren, President and CEO, Federal Reserve Bank of Boston, Barry Barbash, Partner, Head of Asset Management Group, Willkie Farr & Gallagher, Karen Dunn Kelley, Senior Managing Director and Chief Executive Officer, Invesco Fixed Income, and Zoltan Pozsar, Visiting Scholar, International Monetary Fund takes place at 10:30am.
