Moving from Analysis to Action: Non-bank Financial Intermediation under the COVID Lens A key lesson of the COVID event is that non-bank financial intermediation is a critical area for action—especially short-term funding markets, where the money market fund sector has more than $ trillion in assets under management globally.
During normal times, companies and retail investors treat shares in money market funds like cash—as fully fungible, riskless, and payable on-demand. But the funds’ promise of liquidity and investors’ resulting expectations are not always well-aligned with the liquidity of the instruments in which money funds invest. This misalignment—or “liquidity transformation"—creates incentives for money market fund investors to redeem when market liquidity becomes scarce.