Liquidity Support in Financial Institutions

We document a novel support mechanism in financial institutions where banks coordinate their clients’ investments in their affiliated mutual funds facing excessive redemptions. New inflows from banks, particularly from their retail and institutional clients, play a crucial role in both mitigating
the adverse impact of financial distress on fund performance and strategic complementarities in investors’ redemption decisions. Banks serve as an effective coordination device for their clients, allowing them to earn a premium for participating in this support mechanism. Our results reveal
a mutual support system in financial institutions, highlighting the benefits of bank affiliation for mutual fund investors.

Keywords: Bank-Affiliated Mutual Funds, Internal Capital Markets, Liquidity Provision, Financial Fragility, Fund Flows

JEL Classification: G21, G23

Suggested Citation: Suggested Citation

Fecht, Falko and Genc, Egemen and Karabulut, Yigitcan and Weber, Patrick, Liquidity Support in Financial Institutions (November 1, 2023). Available at SSRN: https://ssrn.com/abstract=3650373 or http://dx.doi.org/10.2139/ssrn.3650373