This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Money market funds (MMFs) that grow rapidly when equity markets are soaring pose a systemic risk to global financial systems, new academic research reveals. The study may amplify concerns about the scale and security of private debt amid mounting fears of a possible AI bubble in equity markets.
After analyzing data on 3,568 U.S. dollar-denominated MMFs between 2004 and 2022, the authors concluded that the potential systemic risk of such funds depends less on size than on how quickly they have grown—particularly when financial markets are booming. Money market funds are an increasingly important part of the nonbank financial system and play a major role in providing short-term financing to governments, banks and companies. The paper has just been published in the Journal of Banking & Finance.
The authors conclude that MMFs should be incorporated more explicitly into systemic-risk monitoring frameworks, particularly during periods of asset-price exuberance when rapid fund growth can become destabilizing. Co-author Professor Giovanni Urga, director of the Centre for Econometric Analysis at Bayes Business School in London (formerly Cass), said, "Our analysis suggests that regulators and other policymakers need to look beyond banks and broad macroeconomic indicators when assessing systemic risk. The results demonstrate that the characteristics and behavior of individual nonbank financial institutions clearly influence how risk builds up and spreads through the financial system." The authors speculate that the heightened systemic risk of fast-growing MMFs during equity bubbles may reflect investors reaching for yield amid an equity boom.
Urga said, "It is particularly striking that 'bigger' does not necessarily mean 'riskier': larger MMFs were generally associated with lower systemic risk in normal market conditions. However, that all changes dramatically during equity-market booms: Suddenly, rapid fund growth is associated with higher systemic risk." At such times, a one-standard-deviation increase in fund-size growth is associated with an increase in systemic risk of 5.7 basis points. The same effect is not seen with real estate bubbles.
Urga said, "Regulators and other policymakers should therefore see rapid expansion of nonbank financial institutions during asset-price booms as a red flag of possible emerging vulnerabilities." The authors call for a more differentiated approach to supervision based on differing risk profiles. Government MMFs, for example, were associated with lower systemic risk than prime MMFs (which invest primarily in commercial paper and certificates of deposit). Similarly, offshore U.S. dollar funds do not appear to provide a significant buffer against stress originating in U.S. markets.
The paper concluded: "Our findings [also] underscore the importance of examining the microeconomic drivers of systemic risk rather than focusing solely on macroeconomic variables correlated with asset price bubbles. In particular, we highlight the crucial role of nonbank intermediaries—whose contribution has been relatively underexplored in the literature—in amplifying systemic risk." Matteo Aquilina et al, Asset price bubbles and systemic risk in Money Market Funds, Journal of Banking & Finance (2026). DOI: 10.1016/j.jbankfin.2026.107812 Provided by City St George's, University of London MA in English, copy editor since 2021 with experience in higher education and health content.
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