Will The Money Market Fund Regulation Help Mitigate Run Risk ?

Will The Money Market Fund Regulation  Help Mitigate Run Risk ?

In the aftermath of the global financial crisis of 2008 the banking sector started to deleverage in order to comply with ever stricter capital and liquidity requirements imposed by the Basel Committee. Benefiting from the shift towards market-based sources of financing, shadow banking intermediaries such as money market funds were subjected to greater scrutiny as their credit intermediation role drastically increased within the global financial system in general and the euro area in particular.

As the classical bank credit contracted, the shadow banking sector acted as a buffer for the real economy by providing companies and governments with an alternative solution to secure short-term financing by spreading their risk exposure. Nonetheless the growing role and concentration of this less regulated sector and its ever-tighter links to the financial system raised some concerns amongst regulators.

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