You Can't Always Get What You Want (Where You Want It): Cross-Border Effects of the US Money Market Fund Reform

This paper documents significant cross-border effects of the 2014 US money market fund (MMF) reform on euro area MMFs. As US-based prime funds became less money-like due to the reform, euro area-based prime funds received large inflows from foreign investors. These cross-border flows were motivated by the search for stable net asset value instruments rather than by the introduction of gates and fees. Consistent with an easing of competitive pressure, euro area prime MMFs reduced their risk-taking. However, the industry became more concentrated and susceptible to run risk from foreign investors. This risk materialized during the COVID-19-induced stress period.