N°24-24: Examining the Relationship between Bank Reputational Disaster and Sponsored Money Market Fund Flows

This study examines the repercussions of banks’ reputational damages on affiliated Money Market Funds (MMFs). It reveals that such events depress bank valuations and induce heightened outflows from MMFs despite their financial independence from sponsoring banks. Highlighting a secondary behavioural effect, we demonstrate that investor sensitivity to reputational risks amplifies the contagion risk between banks and MMFs. The effect is particularly pronounced for shocks related to governance. Our findings underscore the significant impact of reputational events on the stability and liquidity of financial institutions and their investment vehicles, enriching the discourse on investor behaviour and systemic financial interdependencies.