Money Market Fund Stress in March 2020 and March 2023: Fund Characteristics, Investor Flows, and Implications for SEC Reforms (Academic research)

Summary

• During the week of March 20, 2020, institutional/other prime fund gross redemptions rose 15.7 percentage points above their February baseline compared to 6.6 points for government funds.p.12
• In the stress week of March 17, 2023, institutional prime redemptions exceeded government funds by only 1.0 percentage point of lagged assets.p.13
• Government money market funds recorded $422 billion of inflows in March 2023 following banking sector turmoil.p.2
• A 10-point increase in weekly liquid assets (WLA) is associated with 3.7 more points of gross redemptions in March 2020 within funds.p.13

Key insights

1. Institutional prime fund run pressure was heavily concentrated in a single week in March 2020 and was substantially weaker during the March 2023 regional banking stress.p.12
2. Empirical data provides no support for the protective role of higher liquid asset buffers in mitigating investor redemptions during periods of stress.p.1
3. A logit model examining large weekly fund outflows of 5% or more finds no statistically significant difference between the 2020 and 2023 stress episodes.p.1
4. Bounds derived from weekly SEC filings indicate that mandatory SEC daily 5% redemption fee triggers would not have been hit with certainty in any week of March 2023.p.2
5. The threat of redemption gates under the SEC's 2014 regulatory framework incentivized preemptive institutional runs during the March 2020 market dislocation.p.3
6. Statistical models show that higher weekly liquid assets held on a previous Friday were associated with higher subsequent redemption pressures in prime funds.p.14
7. Standard errors must be clustered by fund sponsor family to avoid artificially inflating the statistical significance of money market fund liquidity-risk estimates.p.11
8. Simulated redemption fee deterrence scenarios show that a 25% deterrence rate would have reduced institutional prime net outflows in the 2020 peak stress week from 11.7% to 5.2%.p.17