Tuesday, June 9, 2026 at 09:06 AM
Original source
BIS — Research & Publications
MacroLab briefing generated by AI for informational purposes. Original reporting by BIS — Research & Publications. Not financial advice.
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Researchers at the Bank for International Settlements studied 3,500 money market funds (pools of money that invest in very safe, short-term loans) in the United States between 2004 and 2022. They used statistical techniques to identify periods when asset prices (stocks, real estate, cryptocurrencies) became dangerously inflated or "bubbly." The key finding was that money market funds behave differently and become riskier during these bubble periods than during normal times. The study shows that the specific characteristics of individual funds, such as their size and what they invest in, significantly affect how much systemic risk (danger to the broader financial system) they create.
Money market funds are supposed to be the safest place to park cash, like a high-tech savings account. Millions of individuals, companies, and other financial institutions rely on them. When asset bubbles burst (as with the 2008 financial crisis or the 2020 pandemic shock), people panic and try to pull their money out all at once. If money market funds become riskier during these chaotic moments, they might not be able to give people their cash back quickly, which can spread panic through the financial system like a contagion. This can make borrowing costs spike, freeze credit markets, and trigger job losses and economic recessions.
Watch whether regulators tighten rules for money market funds based on this research. Signs of growing concern would include stricter limits on how much certain types of funds can hold, new requirements to keep more cash on hand, or mandatory stress tests during suspected bubbles. Also watch the actual behavior of money market funds during the next major market bubble or crisis: if they experience unusual outflows, gate their withdrawals, or become hard to access, that would confirm the research's warning that they become vulnerable when investors need them most.