Liquidity Support in Financial Institutions
Falko Fecht, Egemen Genc, Yigitcan Karabulut, Patrick Weber
Management Science · Mon
Abstract
We document a novel support mechanism in financial institutions—the direct flow channel—through which banks coordinate client investments to stabilize affiliated mutual funds facing severe redemptions. Inflows from banks’ retail and institutional clients offset a sizable share of outflows, mitigating adverse performance effects, forced sales, and redemption spillovers. Support via the direct flow channel is liquidity driven, concentrated in fragile but viable funds, and most pronounced when cash and family support are insufficient, while complementing credit lines when they are available. Importantly, we find no evidence that bank clients incur systematic costs, underscoring the stabilizing role of banks as coordination devices. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.05036 .
Keywords
bank-affiliated mutual funds, liquidity provision, financial fragility, fund flows
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