Posted on October 15, 2014 by iMFdirect
By Fabio Cortes, David Jones and Evan Papageorgiou
Low interest rates and other central bank policies in the United States have sent investors looking for higher returns on their investments. Money is pouring into mutual funds and exchange-traded funds, which is fueling a mispricing of credit and a build-up of risks to liquidity in the markets—the ability to trade in assets of any size, at any time, and to find a ready buyer.
Mutual funds and exchange-trade funds are the largest owners of U.S. corporate and foreign bonds (Chart 1). This means they provide a lot of credit to grease the wheels of the financial system because they have taken investors’ money and lent it to corporates.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, growth, IMF, International Monetary Fund, Reform | Tagged: central bank, exchange-traded funds, Global Financial Stability Report, liquidity, liquidity mismatch, monetary policy, money market mutual funds, United States | Leave a comment »
Posted on November 10, 2010 by iMFdirect
By Jeanne Gobat
The breakdown of the short-term funding markets was one of the most striking features of the global financial crisis. Equally astonishing, and unexpected, was the central role that U.S. money market mutual funds played in contributing to this wholesale shut-down.
In our chapter on systemic liquidity risk in the October 2010 Global Financial Stability Report, we describe this aspect of the financial crisis and propose some concrete recommendations on how to fix it. Continue reading
Filed under: Advanced Economies, Economic Crisis, Financial Crisis, Financial regulation, IMF, International Monetary Fund | Tagged: asset quality, Financial regulation, Global Financial Stability Report, Lehman Brothers’ bankruptcy, liquidity rules, money market mutual funds, net asset value, repo operations, Reserve Primary Fund, Securities and Exchange Commission, short-term funding markets, systemic liquidity risk, wholesale funding market | 1 Comment »