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Connectedness and ContagionProtecting the Financial System from Panics$
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Hal S. Scott

Print publication date: 2016

Print ISBN-13: 9780262034371

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034371.001.0001

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Insuring Money Market Funds

Insuring Money Market Funds

Chapter:
(p.161) 13 Insuring Money Market Funds
Source:
Connectedness and Contagion
Author(s):

Hal S. Scott

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262034371.003.0013

This chapter analyzes the possible need for insurance of money market mutual funds. The issue is of particular concern given the vulnerability of those funds, in particular, prime institutional funds, to contagious runs due to the money-like nature of their liabilities. It argues that the true competitive impact of expanded insurance on the banking and money market industries requires more detailed study of the appropriate cost and pricing of insurance, before any firm conclusions can be drawn. Given all of the difficulties of extending an insurance regime to money market funds, a more practical approach might be to make clear funds are eligible for lender-of-last-resort support either directly or indirectly through the banks. Liquidity support may be sufficient by itself to stop runs.

Keywords:   insurance, money market mutual funds, financial policy, contagions, financial regulation, lender of last resort, liquidity support, monetary policy

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