Liquidity support and distress resilience in bank-affiliated mutual funds

  • Flows of funds run by banks or by firms that belong to the same financial group as a bank are less volatile and less sensitive to bad past performance. This enables bank-affiliated funds to better weather distress and to hold lower precautionary cash buffers in comparison with their unaffiliated peers. Banks provide liquidity support to distressed affiliated funds by buying shares of those funds that are experiencing large outflows. This, in turn, diminishes the severity of strategic complementarities in investors’ redemptions. Liquidity support and other benefits of bank affiliation are conditional on the financial health of the parent company. Distress in the banking system spills over to the mutual fund sector via ownership links. Our research high-lights substantial dependencies between the banking system and the asset management industry, and identifies an important channel via which financial stability risks depend on the organisational structure of the financial sector.

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Author:Giulio BagattiniGND, Falko FechtORCiDGND, Angela MaddaloniGND
Series (Serial Number):SAFE working paper (No. 385)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2023
Year of first Publication:2023
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2023/03/31
Tag:Bank affiliation; Mutual funds; Redemptions
Edition:This version: February 2023
Page Number:44
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:G Financial Economics / G2 Financial Institutions and Services
G Financial Economics / G2 Financial Institutions and Services / G23 Pension Funds; Other Private Financial Institutions
G Financial Economics / G3 Corporate Finance and Governance
Licence (German):License LogoDeutsches Urheberrecht