Pricing Liquidity without Preemptive Runs
![Image of drop of water in pool with dollars](https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2022/01/LSE_2022_mmf_cipriani_460.jpg?w=920)
Prime money market funds (MMFs) are vulnerable to runs. This was dramatically illustrated in September 2008 and March 2020, when massive outflows from prime MMFs worsened stress in the short-term funding markets and eased only after taxpayer-supported interventions by the Treasury and the Federal Reserve. In this post, we describe how mechanisms like swing pricing that charge a price for liquidity can reduce the vulnerability of prime MMFs without triggering preemptive runs.