In June 2022, the Federal Reserve started reducing the size of its balance sheet, which had expanded to just under $9 trillion in response to the COVID-19 pandemic. However, whereas banks' reserves at the Federal Reserve have decreased, the investment of money market funds (MMFs) at the Federal...

This paper presents a simulation exercise assessing the ability of Italian banks to fulfil their payment commitments in TARGET2, the Euro area Real Time Gross Settlement System, in the event of a contraction in the supply of funds in the overnight unsecured money market. The results of the...

A number of falsehoods have emerged during the past two years concerning money market funds and their role in the financial system. The latest fallacy claims that MMFs can cut off the supply of funds to the banking system and thereby imperil the ability of banks to provide loans to the economy....

The current stable-NAV model for prime money market funds exposes fund investors and systemically important borrowers to runs like those that occurred after the failure of Lehman in September 2008. This working paper, by the Squam Lake Group, argues that, to reduce this risk, funds should have...

This paper presents a general equilibrium, monetary model of bank runs to study monetary injections during financial crises. When the probability of runs is positive, depositors increase money demand and reduce deposits; at the economy-wide level, the velocity of money drops and deflation...