Liquidity support and distress resilience in bank-affiliated mutual funds

Giulio Bagattini, Falko Fecht and Angela Maddaloni

No 385, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: 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 highlights 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.

Keywords: Mutual funds; Bank affiliation; Redemptions (search for similar items in EconPapers)
JEL-codes: G2 G23 G3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Liquidity support and distress resilience in bank-affiliated mutual funds (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:385

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