Banks must hold up to 25 percent of the value of operational deposits in high-quality liquid assets, in order to withstand a 30-day stress environment. The liquidity requirement for non-operational deposits is less favorable—up to 100 percent—making it more expensive for banks to hold such deposits. 12 12 The Federal Reserve has also increased its supervisory focus on the liquidity of large banks in particular with  the Comprehensive Liquidity Analysis and Review. 13 See Marco Cipriani, Gabriele La Spada, and Philip Mulder, “Investors’ Appetite for Money-Like Assets: The  Money Market Fund Industry after the 2014 Regulatory Reform,” Federal Reserve Bank of New York Staff Reports, no. 816, June 2017. 14 MMFs are open-ended mutual funds that invest in money market instruments. Unlike other mutual funds, MMFs  have traditionally allowed their investors to redeem shares at a fixed net asset value (NAV) of $ per share under most circumstances. This characteristic makes MMF shares very similar to bank deposits (although they are not insured). MMFs are regulated by the Investment Company Act of 1940, which restricts their holdings to shortterm, high-quality debt. The industry can be divided into two main segments: i) government MMFs invest in 8 / 10  BIS central bankers' speeches  Treasuries and agency debt and can only lend to the private sector through repos collateralized by Treasuries or agency debt; ii) prime MMFs can also invest in private unsecured debt. Tax-exempt funds represent an additional, smaller segment, which invest mainly in municipal and local authorities’ debt.
2 For instance, a long-term U.S. government bond can be a safe investment for a life insurance company  (because the security carries no credit risk and matches the duration of the life insurance company’s liabilities), but it is not money. 3 See, for instance, Thomas Eisenbach and Sebastian Infante, “What Makes a Safe Asset Safe?,” Federal  Reserve Bank of New York Liberty Street Economics (blog), November 27, 2017. 4 See Benjamin Lester, Andrew Postlewaite, and Randall Wright, “Information and Liquidity,” Journal of Money,  Credit and Banking 43 (s2), October 2011 and “Information, Liquidity, Asset Prices, and Monetary Policy,” Review of Economic Studies 79 (3), 2012; and Bengt Holmstrom, “Understanding the Role of Debt in the Financial System,” Bank for International Settlements Working Papers no. 479, January 2015. 5 For the purpose of these remarks, I assume that, as is largely the case in developed economies, the monetary  authority is able to keep prices stable; I therefore disregard the difference between nominal and real future payoffs. 6 Assets accepted as collateral are assigned a lendable value deemed appropriate by the central bank, taking  into account a haircut that reflects an assessment of credit risk, historical volatility, and market liquidity. However, the assets (and associated risks) remain on the balance sheet of the borrower. 7 Previously, the Federal Reserve had sterilized its liquidity provision by running down its Treasury portfolio.