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1 posts on "swing pricing"
January 31, 2022

Pricing Liquidity without Preemptive Runs

Marco Cipriani, Antoine Martin, and Patrick McCabe

Image of drop of water in pool with dollars

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.

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Posted at 7:00 am in Crisis, Financial Intermediation | Permalink

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