Non-bank liquidity provision to firms: Fund runs and central bank interventions

We study the determinants of the liquidity dry-up in the commercial paper market in March 2020 and the role of central bank interventions in reviving the market. We show that the dry-up was driven by money market funds (MMFs) - the key investors in the commercial paper market - that faced investor outflows. Using security-level fund holdings, we establish that the liquidity crisis in MMFs affected corporate funding: nonfinancial companies were less likely to issue commercial paper if their commercial paper was held by funds experiencing larger investor outflows. We show that the revival of the market was driven by the ECB’s intervention in the European non-financial commercial paper market leading to better terms and conditions for eligible firms.