Providing Safety in a Rush: How Did Shadow Banks Respond to a $1 Trillion Shock

This paper examines the challenges faced by government money market funds (MMFs) in maintaining their safety during flight-to-liquidity events. Using exogenous variation in both demand for government MMF shares and the supply of Treasury bills, we show that Treasury securities are insufficient to accommodate MMFs' needs in a flight to liquidity. Instead, MMFs rely on the Federal Home Loan Banks (FHLBs). FHLBs not only offer large amounts of safe assets on short notice, but also securities with features not offered by Treasury securities or repo that allow MMFs to manage liquidity and interest rate risks.