 So I would say we see Marie ready to start with the first paper, and indeed the first paper is on non-banks and possible access to the LOLR, which I had highlighted as one of the key research and policy questions on the table. So Marie, the floor is yours. You have 30 minutes. Hi, good morning and good afternoon everybody. Let me share my screen. Thank you very much for putting our paper on the program. It's really great pleasure to be a part of Money Market Conference, our flagship events on Money Market. We are going to talk about non-banks and the access to LOLR and we're going to look in particular on what happened to the investment fund sector during the March 2020 liquidity crisis. This is joint work with my colleague from the ECB, Johannes Breckenfelder and former ECB colleague, Nicholas Grimm. And I should say that the views expressed are solely our own and do not necessarily represent the views of the ECB or the euro system. I think it's needless to argue in this audience that non-banks are becoming increasingly important in the financial system. In the euro area, their assets doubled over the last decade and they also became a significant source of funding for non-financial corporations constituting about 20 percent of total credit. As the importance of non-banks grew, so did concerns that the buildup of risk in non-banks can adversely affect financial stability and monetary policy transmission. And I think it's fair to say what happened in March 2020 gave some support to these concerns whereby we witnessed an unprecedented liquidity crisis in the investment fund sector. There were large redemption, so high debt redemption risks, margin calls, hidden investment funds and all that put liquidity strains on this sector. As investment funds faced the liquidity crisis, the obvious question came up, do they need access to the land of last resort? For example, do funds need access to central bank liquidity facilities or should their shares be eligible for central bank asset purchases? So with this work today, we want to provide an input into these discussions. We will definitely not provide a full answer, but we will provide hopefully an input to think about the cost-benefit analysis of this question of whether non-banks should have access to the land of last resort. Let me start by showing you one aspect of this liquidity crisis of March 2020. And here we are zooming in on the runs experienced by the Euro area mutual funds. The chart here illustrates aggregate net fund flows in percent of total net assets between January 2020 and June 2020. So when you see positive bars, it means that inflows in this mutual funds, we are looking here at investment grade investment funds, are higher than the outflows. And when you see large negative bars, it means that outflows outweigh the inflows. So what you see is at the beginning of March, there has started this large outflows of funds in the mutual funds of investment grade. And these outflows reached the peak about mid-March, with outflows being about minus point 5% of TNA. And then the outflows slowly diminished and basically there were no more outflows by the end of March. With the vertical bars here, we illustrate some of the events. So there was the onset of this liquidity crisis in the beginning of March. Then the middle vertical bar here illustrates the announcement of the PEP, the pandemic emergency purchase program that was announced on March 18. And the last vertical bar signifies the start of purchases under the PEP on March 26, 2020. These are some of the events we will explore in our analysis, but you see how they line up nicely to some of the developments in these net flows of in Euro area mutual funds sector. Now, these outflows were in March 2020 were by no means confined to the Euro area. In fact, exceptionally large outflows were also documented for US want mutual funds, for example, in the work by Palato et al. And as mutual funds faced outflows, they needed to get liquidity, so they sold assets. And this indeed put strains on broader financial markets as has been documented by a couple of recent papers, including a very nice paper by, by our discussing. So this is sort of to give you an idea of the run phenomenon that mutual funds experienced in March 2020. What we also document is that funds faced a dry up in the repo markets. And this is a chart to illustrate this dry up. It shows you new bank lending to funds in billions of euros between February and April of 2020. So this is bank lending to the investment fund sector in terms of new transactions. And what we see is that bank cash lending to investment funds declined by 50% between February and March 2020, going from about 30 billion a day to 15 billion a day by the end of March. And again, with this vertical bars, we will straight some of the interesting events that we will be looking at in our analysis. The first vertical bar is March 12th, where Bridge LTROs, a special pandemic tailored liquidity providing operations to banks were announced. The middle bar is the settlement of the first such operation on March 18, that is again a PEP that was announced on March 18. And the last vertical bar is the March 25th, when the second Bridge LTRO was settled. There was also a settlement of a large targeted LTRO operation. And then PEP purchases actually started on March 26. So again, some of the events we will be looking at in our analysis. So what are we going to do in this paper? We are going to analyze this March 2020 crisis to assess the impact of two interventions. First, we are going to look at the impact of central bank asset purchases under the pandemic emergency purchase program, the PEP. And the mechanism we have in mind in terms of how this particular central bank intervention could have helped the strains in the investment fund sector is that it could have attenuated fire sale dynamic in financial markets, supported market prices of assets held by funds and therefore improved fund performance and helped attenuate fund outflows. The second central bank intervention we will be looking at is central bank liquidity provision to banks through the Bridge LTROs, the special pandemic related operations that were announced on March 12, 2020. And the channel we have in mind here is that banks made channel liquidity to funds through the money markets. And we will see whether this is something that took place and whether this Bridge LTRO supported money market activity. We're going to use several data sets in our analysis. We are going to lean in particular on detailed fund level data using the Lippert database. And we will also use confidential data on bank borrowing from the ECB, matched with bank lending to funds in the people markets. Just to give you an idea of how our paper fits into the different literatures out there. First of all, it was clearly related to a very vast literature on investment funds, which looked at aspects like fund fragility, liquidity management in the fund industry, fire sales performance evaluation. Our paper provides an analysis of central bank asset purchases and liquidity provision to banks in the liquidity crisis and how these particular central bank interventions affected developments in the fund sector. We also relate to the literature on the effectiveness of central bank interventions. Many papers have looked at transmission of central bank policies through banks. We looked at financial market impact or the impact of new facilities introduced by central banks. Our paper will look at the effectiveness of central bank intervention for non-banks investment funds with no central bank access. And lastly, we also relate to the literature on money market functioning or malfunctioning in crisis times, whereby we will look at transactions between banks and investment funds in the liquidity crisis. So with that, let me give you an overview of what we do in the first part of the paper, which focuses on the impact of central bank asset purchases on the investment fund sector. We are going to be interested in the impact of purchases on fund performance and fund flows. We are going to zoom in on the Pandemic Emergency Purchase Program, the PEP, which is a program that was announced by the ECB on March 18, 2020 in the evening after markets closed and was implemented as of March 26, 2020, meaning the purchases under the PEP actually started on that date. To analyze the effects of the PEP, we are going to zoom in on a particular subset of investment funds. We're going to look at bond mutual funds that satisfy two criteria. First, they invest in investment-grade securities. Second, they hold a non-zero share of euro area securities in their portfolio. The reason we are looking at this particular set of funds is that we want to look at a relatively homogeneous set of funds so that we can reasonably identify the effects of the PEP. That's why we look at the funds that invest in investment-grade securities. The reason we are looking at the funds that have some exposure to the euro area through their portfolio holdings is that we want to look at funds that can be reasonably expected to be affected by the PEP. That's why we look at funds that have some exposure to euro area securities. Having established this particular set of bond mutual funds, we are going to do something very straightforward. We are going to compare funds with higher shares of PEP-eligible assets in their portfolio X&T. We are going to look at the portfolio holdings as of January 2020. We are going to compare these funds with funds with lower shares of PEP-eligible holdings. Now, you might wonder what is the difference between these two groups of funds driven by after all we are looking at a relatively homogeneous set of funds investing in investment-grade securities. Well, the difference is related, for example, to holdings of securities issued by US issuers of securities issued by banks. For example, when we think of US issuers, the difference between higher and lower PEP-eligible fund groups is 15% of holdings are invested in US issuers for higher PEP-eligible funds, whereas 40% of the holdings of lower PEP-eligible funds are invested in US issuers. Now, neither US issuers nor securities issued by banks, by financials, are eligible for PEP purchases. This is what gives us a variation across funds in terms of how much the holdings were exposed to the PEP program. First, we are going to look at the impact of the PEP on fund performance. This chart really tells the story. Let me tell you what's in this chart and then I will tell you what the outcome of our regression analysis is. This chart gives you fund market value change in percent between January 2020 and June 2020, and it does so for two groups of funds. Those with higher PEP-eligible holdings are the blue line, the performance of the funds that have relatively more PEP-eligible assets in their portfolio in January 2020, and the red dotted line is the performance of the funds with lower PEP-eligible holdings. Now, we normalize their performance to zero in January 2020. We trace it over time, and what you can see is that the performance of these two groups of funds is remarkably similar all the way until mid-March, including the very large drop in their performance as of the beginning of March, going until the middle of March, very similar performance parallel trend there in these two groups of funds. But as of the middle of March, in particular on as of the March 18th, when the PEP program was announced, we see that the performance between these two groups of funds decouples. The funds that have more PEP-eligible holdings in their portfolio see their performance improve on announcement as of March 18th and continue trending upwards afterwards, and those funds will have fewer PEP-eligible securities in their portfolio, still see their performance decrease in mid-March and only recover later on and converge to the performance of more PEP-eligible holdings funds later on by June of 2020. We put this into the difference in different setup, and what we get is basically what you see on this graph. Specifically, what we find is after PEP announcement, this performance gap between higher and lower PEP-eligible funds was 3.7% in the announcement week of the PEP, so this gap is 3.7% in the performances with those funds that have more PEP-eligible holdings performing better. In the first week of PEP implementation, as of the week of March 26th, we still see a statistically significant gap in performance of 2.7%, and in the second implementation week the gap is still there and it is 2.1% in terms of performance. Thereafter, the gap is no longer significant, so we do see that for those funds that have more PEP-eligible holdings above the median, they see their performance improve immediately upon announcement of the PEP, and they outperform the other group of funds for the subsequent weeks as well. Now, this result is interesting also because we know that there is a link between fund performance and the outflows that the fund faces. Bad performance tends to trigger more outflows, so the obvious next question is if PEP managed to help improve the performance of funds with higher PEP-eligible holdings, did it also help stem those outflows that we saw very early on in my presentation? And that's exactly what we look at next. We ask what is the PEP impact on fund net flows, so inflows minus outflows, and here is the excerpt from our production table and our definitive setup where, again, we have the PEP-eligibility dummy for those funds that have more PEP-eligible assets, and we split the analysis in the time periods, the beginning of March, the week following PEP announcement, the first implementation week of the PEP second, and the period afterwards. And what we see is that before the announcement of the PEP, when the funds face this large outflows, there is actually no difference between funds with more or less PEP-eligible holdings. I show you the results into columns because one specification is written without controls, but the results are very, very similar. No difference between low and high PEP-eligibility funds prior to PEP announcement. But with PEP announcement, we see that funds with more PEP-eligible holdings have more net flows, so they have less outflows, if you will, in this period. And the effect is actually quite large. After PEP announcement, the net flows of higher PEP-eligibility funds actually go up by 63% relative to the other funds. We do not find any statistical difference between high and lower PEP-eligibility funds after the end of March. By the end of March, as we saw also on the very first graph, the rounds pretty much stopped in our group of funds and the flows largely stabilized in both high and low PEP-eligibility funds. So in sum, what we conclude from this part of our analysis is that PEP really helped improve the performance of funds and helped stem fund outflows. Let me go to the second part of our analysis where we look at the effects of central bank liquidity provision to banks and how it affects repo lending to investment funds. Here we are going to zoom in on the new long-term refinancing operations, so-called bridge LTROs, that were announced on March 12, 2020. They were conducted weekly and all matured on June 24 of 2020. Why June 24? Well, that was the date on which a very large targeted LTRO operation was due to settle, and these bridge operations were supposed to bridge the time until that large LTRO operation in June. What we're going to do here in this part of the analysis, we are going to look at the relationships in the repo market between banks and investment funds, and we are going to zoom in on the relationship and investment funds had with banks prior to the COVID crisis. These bank fund relationships are actually sticky. They do not change over time. There are certainly no new relationships formed during this crisis period, and what we are going to do is we are going to look at funds that have two or more bank relationships. Why do we do that? We want to take advantage of the Quadramilla methodology and control for fund-specific effects so that we look at bank repo lending to funds for the same fund comparing across different banks. What kind of different banks are we going to comparing between? Well, we are going to split banks in two ways. We are going to compare repo lending across banks with higher versus lower exposure to the pandemic-induced liquidity crisis, the so-called Dash for Cash, XNT as of January 2020, and we are going to explore two cross-sectional splits. One is we are going to split banks on commercial paper all over, and the second split we are going to explore is we are going to split banks according to the differential holdings of excess reserves. Let me tell you a bit more about these two splits. Here is a motivation for our split on commercial paper, and this chart is giving you commercial paper issuance for the banks in our sample between January 2020 and June 2020. What it shows is that the commercial paper issuance by banks came pretty much to a standstill by mid-March of 2020. There was very, very little issuance by that time, and then it recovered gradually going forward. Again, we have some vertical bars indicating some of the policy interventions we will be looking at, the announcement of which appear on March 12th, we have the settlement of the first breach operation on March 18th and the PEP announcement, and then we have a number of events happening post-March 25th. So what we are going to do with this, we are going to split banks on their commercial paper all over needs. We are going to take the amounts that banks needed to roll over in the commercial paper market over the February to April period. We are going to take this as a ratio to the total assets, and this is going to give us a measure of funding liquidity needs in the bank commercial paper market. A second split of banks cross-sectionally we are going to explore is looking at the excess reserve holdings, so holdings of reserves in excess of the reserve requirements. We are going to take the amount of excess reserves held by banks as a ratio to total assets, again, extent in January 2020, and this is going to give us a measure of readily available liquidity if you will that banks had when the COVID crisis hit. Now what are we going to do with this sort of two cross-sectional splits? We are going to look at the effects of central bank liquidity provision on bank repo lending to investment funds, and we are going to test how bank repo lending to funds changed. First we are going to look at the change in bank repo lending to funds following the announcement of the bridge LTROs compared to the week prior, and second we are going to look at how bank repo lending to funds changed following the settlement of the first bridge LTRO operation. It was also in the same week as PEP announcement happened again compared to the previous week. The reason we are not going past first bridge LTRO is two-fold. Number one, after the first bridge was settled, so it was the second bridge LTRO settlement, there were several events that happened and I already showed them on some of the charge. There was a settlement of the targeted LTRO on March 25th. There was also a beginning of actual purchases under the PEP, so there's a multiplicity of events past March 25th that is going to be making very difficult for us to say what are exactly the effects of bridge LTRO as such. So we are going to focus on the announcement effect and we are going to focus on the settlement of the first bridge LTRO, meaning the moment at which the money that banks actually borrowed in the first bridge arrived on their balance sheets. Now what is the hypothesis here? We conjecture that banks that were more exposed to March 2020 liquidity crisis should be relatively more affected by central bank liquidity provision. This central bank liquidity provision on March 2020, so bridge LTROs was aimed at alleviating bank liquidity constraints, so the conjecture is that those banks that were presumably more liquidity constrained because they were more exposed to commercial paper dry up because they had less excess reserves on their balance sheet would be more affected by these central bank interventions. So what is our results in terms of the announcement effects of bridge LTROs? Well, I can be very fast on that because we don't find any evidence of a positive effect on bank repo lending to investment funds following the announcement of bridge LTROs on March 12th 2020. No difference between more or less exposed banks, no effect of the announcement. What about the settlement? And here is the regression table where again we are comparing banks that are more or less exposed to the March 2020 liquidity crisis. And remember we have two splits. We have a split of banks on the commercial paper exposure and we have a split of banks on how much excess reserves to total assets they held in January 2020. And for each of these splits we explore two left-hand side variables. We looked at the change in transaction volumes week on week. And we also look at the change in the amounts of repos outstanding week on week. And what we see here is that indeed more exposed banks lend more. The repo transaction volumes go up by 2.44% if we look at the commercial paper split by 1.64% if we look at excess liquidity split when it comes to the change in transaction volumes. And if we consider the change in the amount of sending of bank repo lending to investment fund sector then we see an increase of 1.87% if we look at the commercial paper split and of 1.65% if we look at the excess reserves split. So there is some indication that the settlement of the first bridge LTROs and again it's also the week where PEP was announced. So at this point it's just week on week change March 18 week compared to the previous week. There is some association with larger transaction volumes and amounts of outstanding for banks that were more exposed to the March 2020 liquidity crisis. Now there are two events at least in that week of March 18 there is a settlement settlement of first bridge LTRO and there is PEP announcement. So you might wonder what is it that actually potentially can explain this increase in repo transactions and amounts of outstanding. Is it the PEP or is it the settlement of the bridge LTRO? We're going to try and get at that question by looking at the regression setup where we further interact our bank exposure dummy to the liquidity crisis through commercial paper or through excess reserve holdings. We're going to interact that with the dummy of whether or not a bank actually took up liquidity in the first bridge LTRO. And so the question is do banks that were more exposed and actually took up liquidity in the first bridge did they lend more to investment funds in the repo market following the settlement of the first bridge? And you see the results we only find some results for the changes in transaction volumes, no results for the amounts of outstanding. We do find that more exposed banks that actually did take up bridge LTRO funding increase their repo transaction volumes by 3% if we look at the commercial paper split and by 4.19% if we look at the split based on the excess reserve holdings. So there is some evidence that actual take up of liquidity had some effect on the transaction volumes no effects on the amounts of outstanding so possibly these funds obtained in the first bridge LTRO were used to roll over existing credit rather than on the net increase the amounts of credit outstanding. So some evidence of the association between bridge LTROs and bank repo lending to investment fund sector in the repo market. I am calling it an association because of course the all banks had access to LTROs and the decision whether or not to take up LTROs is endogenous. So this is sort of the the correlations that we show here in terms of how those operations and the take ups in those operations is associated with bank repo lending to funds in the money market. Let me conclude with a few sort of thoughts on the policy implications of our work. We started off with the question of do non banks need access to the land of last resort. Should funds be eligible or central bank counterparties for our operations? Should there be a dedicated credit facility for funds? Should fund shares be eligible for central bank purchases or should they be eligible as collateral for central bank liquidity operations? These are all the questions and ways in which funds can have some access to central bank balance sheet and have some access to the land of last resort. Now I should say that granting funds any access to the land of last resort has costs. There are very large operational challenges and legal challenges potentially and there are also additional risks that can come in if funds do get access to the land of last resort. Now what we try to do in this paper is something simpler than actually answering this host of questions of how and whether funds should get access to the land of last resort through this new means. We simply asked has the existing toolkit that was in place in March 2020, was it helpful in terms of alleviating the liquidity crisis investment fund sector faced during that time? And our answer is well actually the existing toolkit was helpful. Fund performance improved, fund outflows stabilized and bank repo lending to funds was supported to some extent. So while our paper is not a normative paper that tells you what is the best way to provide liquidity to funds in the liquidity crisis or what is the most effective intervention, we think that it sheds some light in terms of the cost benefit analysis as we are thinking about the cost and benefits of granting funds access to the land of last resort. Our paper gives some thoughts on this cost benefit analysis by showing that also some of the existing rules were capable of reaching the investment fund sector in the crisis although funds did not have direct access to the land of last resort. Let me stop here. Thank you very much. I very much look forward to the discussion and your comments. Thank you. Thank you Marie. The paper will be discussed by Yiming Ma from Columbia University. Thank you so much for having me to discuss this very interesting paper on whether non-banks should receive access to the lender of last resort. And let me just say again this is a very important topic as Marie said non-banks in particular open and mutual funds that invest in fixed income securities have rapidly grown in size and in addition to just being larger and larger they also perform you know a very special and important role for the economy which is liquidity transformation right and they do that by issuing redeemable shares that investors can go and just you know redeem on demand at a daily basis but their assets in comparison are much more eliquid so they invest in corporate and government bonds so there's a mismatch between the liquidity on the asset and liquidity on the liability side so you know much of what they do looks like banks and their degree of liquidity transformation has also been increasing over time while that of banks have been falling okay and so they perform a similar function for the economy and it's been found that they may suffer from similar risks which is the risk of having inefficient runs and the key reason again is assets are more eliquid so if everyone wants to take the money out of the fund you know assets would have been sold at a discount at a fire sale price and that is not sustainable and hence there's this first mover advantage to take money out and to run from the fund okay and so given the importance of their function and the risks in here and in the function they perform this paper goes and asks a very important question well you know if they look a lot like banks and have some of the risks that banks entail you know should they also receive a lender of last resort access like we do have for banks right now okay and the main findings as Millie summarized is that the announcement of asset purchases increased the maturities of repos and more liquidity constrained banks lent to funds further funds that have higher shares of assets eligible for central bank purchases in the portfolio before the COVID-19 crisis also endured smaller outflows and had better performance okay and overall I think the answer is that mutual funds were stabilized effectively without direct access to the lender of last resort and I think the evidence presented is over very convincing you know I think that the execution is generally very careful combines lots of interesting data and again addresses a very important question so I mostly had some big picture comments to think a bit more about you know what is the economic channel behind the results of BC and what you know do they mean for thinking about this issue going forward I will start by looking at repos in particular I will you know try to convince you that it's important to think about the price at which these repos extended to to really address the question of whether they were able to stop runs and then you know I want to think a little bit about collateral and in the end the channels through which asset purchases affected and stabilized mutual funds okay so is that first you know the interest rate on repos I think is important to jointly consider together with the volumes and the maturities that now the paper has been looking at and that are very important okay so to understand that let's just recall for you know the moment why mutual funds have runs or have this first mover advantage in redemptions okay and the reason is that investor redemptions right to meet these redemptions the fund needs to sell some assets these asset sales because they need to be done immediately and these assets are really liquid they often incur discounts right so in the fire sale for example you know assets are sold at a penalty rate now you know these discounts though they're not immediately reflected in the net asset values that investors who are taking the money out obtain right these net asset value values are sticky they're sluggish to adjust and hence if I'm the investor and I know that this is going on I want to take my money out first I want to take my money out before other investors take out their money so that I can get the higher net asset value that hasn't yet adjusted okay but if everybody thinks like that then you know we're in we have a problem because then everybody wants to front run and everyone wants to take their money out before other investors have taken their money out okay so this is similarly to the classic bank run problem where you know everyone wants to take their money out in a bad equilibrium okay so you know repo right could potentially have the benefit of alleviating or avoiding these types of runs okay so you know the ideal counterfactual scenario would be the fund you know when it has investor redemptions okay the fund doesn't goes to sell asset it goes to raise repo funding okay it uses that funding to pay its investors right and then you know because there's no more fire sales there's no more discount incurred on the funds net asset value all right and there's no more incentive to take the money out first because there's no discount incurred there's no fire sale discount on the net asset value in the first place okay and in this sense you know if repo funding can be flexibly extended in times of stress in times of investor redemptions okay then we may be able to you know avoid these inefficient runs from happening okay and so this is the potential benefit of repo funding but you know against this benefit it's important to think about what is the potential cost of repo right and the cost of repo in a nominal sense is just you know what is the interest rate as it's being charged okay and suppose okay so suppose funds can borrow repo but especially in times of crisis this repo funding comes at a high or penalty interest rate all right and this could be very likely because you know it's been found that dealer bailing bank balance sheets costs are expanding in crisis times it is also the case that repos are borrowed in the over-the-counter markets in which these dealer banks have extensive bargaining power over the mutual funds okay and if that is the case right that just means that okay you do not need to fire sale you don't have the fire set discounts but you still need to pay these very high interest rates for your funding okay and if the fund net asset values are adjusting too slowly right to reflect these penalty repo rates okay then there is still that incentive to front run before the NAV has fully adjusted or in other words the incentives for a fund runs may still persist okay and so that's why again this is just a hypothetical scenario it may not be like this but again it's good to think about you know what is the interest rate charged okay does it really change then times are bad did it increase more for mutual funds we needed to borrow more and importantly how does it compare right how does it compare to a hypothetical interest rate that the central bank could supply right because it could be that the funds right now are accessing funding at a much higher rate at a rate that you know have this effect on that asset values and run incentives but that the central bank would be able to provide a rate that is more efficient in crisis times that would alleviate the you know the the penalty rate due to the higher repo funding rates right now okay and I think that you know this is possible to do because the MMSR data set is very nice because it does have the transaction prices available and I think that the joint analysis of volumes and rates can help us better understand you know whether uh the access to let a lender of last resort could help to prevent by runs by even more than what currently is the case with the available repo funding from just dealer banks okay and just um that was the first point but notice that everything we discussed so far would have worked with unsecured and secured funding alike right and you know it's very interesting that you know it's repo that is being lent to these mutual funds and repo special because there is a collateral underlying that transaction okay and so far there's been little documentation of secured borrowing by mutual funds I don't think that's because it doesn't exist but I do think that it's because so far really there hasn't been any data I think the only source that I could find related to this is Trinoco and Sanderam who look at really reportings the text of the reportings and you know find that you know mutual funds have credit lines but I think the evidence for the use of secured funding that fact on its own is novel and interesting and could potentially be an important contribution of this paper all right and I think to further consolidate this contribution I think it'll be interesting to look more into what types of collateral is being used to secure the repo loan and how does this collateral vary with the funds overall asset portfolio right is it the most liquid types of securities that they use or is it the more illiquid types how does this you know contract change in the cross-section depending on what type of fund we're looking at the illiquidity of their assets and how does it vary in the time series right does it change in good versus bad times does it vary you know at times when dealers are more constrained etc etc I think understanding the role of collateral can help us understand better about you know what is the overall economic significance of repo funding to mutual funds and also you know how that could affect their crisis liquidity management okay and lastly I just wanted to talk a little bit about asset purchases and the potential channels through which it has effective mutual funds something that you know we thought of a lot and really weren't fully able to to get the answer to so you know perhaps this is possible in the European setting and so this is a graph about outflows from from US mutual funds and it really looks very similar to the one that Marie just showed about the US at the European funds which is that you know the outflows and again negative is outflows it really started to be curved uh with the announced purchase of corporate bonds okay and that was around March 23rd and April 9th now there was a previous announcement of the purchase of treasury securities so we're an extended version of QE basically that didn't really seem effective okay and so both treasuries and corporate bonds were held by mutual funds right in particular investment grade mutual funds were holding treasuries as well as investment grade uh corporate bonds that were announced to be purchased on March 23rd okay so what appeared like from a very simple and naive conclusion here is that the purchase of some type of bonds were effective and the announced purchase of other types that are the more liquid securities were not effective okay and I wonder what the channel is uh you know for the funds in this paper right um because there could be two potential channels through which asset purchases can help fund uh you know outflows and performance the first one in which is you know the liquid assets that are being sold by the funds in meeting redemptions right uh the discount on them is improved because the central bank now is announcing the purchase of these assets okay and if there's many buyers of an asset that people sell well then the sellers may not incur such a high discount and you know that uh stems the potential outflows that are worried about the discount incurred okay but it could also be that the purchase of illiquid assets uh the ones that are not being sold but the ones that are being held on fund balance sheets are curbing the outflows okay because the uh you know expected purchase of these illiquid assets in the future by the central bank could convince everyone that okay the fund is very healthy and convince everyone to stay busy with the fund okay and it'll be interesting to sort of look at which types of funds but type of exposure uh help the funds to to benefit more from the announcement of asset purchases to shed some light on the potential transaction transmission channel of asset purchases on fund outflow and performance okay and related to that uh you know is if it was through these illiquid assets right then is the effect just a direct expected price impact right of asset purchases on asset prices right this would exist outside of you know any institution you just expect to buy a certain assets prices reflect that expectation and prices would go up all right right or is the effect more indirect through alleviating fund outflows right whereby investors look at the potential uh announcement of asset purchases in the future right they're assured by the fact that the fund assets they're holding is going to be bought right as a result they're less likely to run the fund is less likely to sell assets and that reduced asset sale at higher prices is going to help preserve fund out okay it seems like the latter is a bit more of what uh you know the optimal uh solution would be because the former would basically imply a general effect and you know price impact on asset prices um but it would be really interesting you know if uh the data can shed any light on these potentially different uh transmission mechanisms okay and so is that let me end just again by saying I think it's a very important topic I think the data is unparalleled and that the results are very convincing and showing that mutual funds did not require direct access to the lender of last resort to be stabilized during the COVID-19 crisis I think it'll be interesting to look further into the economic mechanisms at play which includes looking at the interest rates on repos to understand whether there were penalty rates that could have still contributed to runs even if repo volume was extended I think looking at the collateral being used is interesting and how that could have varied over time and in the cross section and lastly in terms of asset purchases you know I think the uh you know effect is very uh interesting and it's definitely there but the transmission mechanism is perhaps equally important especially as we think about questions such as you know whether mutual funds should receive direct access to the lender of last resort going forward is that thank you very much thank you Yiming so before I turn to questions from the floor Marie would you like to take a moment to respond and maybe you could in your response also reply to the question whether you have analyzed repo rates thanks thanks Luke about biggest thanks goes to Yiming thanks so much for really fantastic discussion it's going to be extremely helpful for us as we work on the next version of the paper thank you I agree with everything you said we can we can and should do more on the repo analysis front indeed we can and should look at the prices and end of the collateral so we started looking at this but we we have not had time to to finish the analysis but this is definitely on our list I think what's very interesting is that Yiming and her co-authors have shown that when it comes to asset sales by mutual funds when they face a run they liquidate the most liquid assets now it could be that they bring some of the less liquid assets potentially of those most to fire sale subject to most fire sale discount they bring them to the repo market including they can pledge some of the assets that are for example not eligible for the public bank bonds and borrow against those in the repo market and so indeed I think there is a wealth of information for us to explode in terms of what is the type of collateral that funds pledge in the repo market did it change with the onset of the crisis how did the prices evolve and indeed in fact the combination of volumes prices and collateral I think that's the triple that we need to be looking at in in that analysis so I fully fully agree in fact there is sort of another channel through which PEP could have helped in effect which is that it also affected the collateral value of some of these some of these assets so we can also sort of interact and and see what the PEP effect was on those collateral values in the repo market on the PEP side I want to say two things one is I think it's very very interesting this sort of somewhat of a difference that people found looking at US data and fund interventions and what we found in our paper what's very interesting to me is that I believe papers like Yeming's paper and the paper by Palato et al documented really the biggest effect was the April 9 intervention of the Fed which really sort of targeted those fallen angels now what we found actually in Europe PEP as such had you know an immediate and strong effect and basically all runs were gone by the end of March it did not sort of prolong until the beginning of April I think this is a very very interesting difference and I think if there is something to be explored what is the difference between Europe and US that led to this particular difference so that's definitely definitely on our list one thing that I want another thing that I wanted to mention is that we did run a robustance check in our paper where we actually considers those Fed interventions and we control for pet interventions to see whether there is any you know sort of change in our results if we take those into account because the funds we are looking at are you know exposed to the euro area but they hold all kind of other assets as well including US assets and we and our results survive if we control for pet intervention so that's maybe something that's important to mention thanks so much Yiming again please do send us your slides and look over to you if there are more questions from the floor. Thanks Marie and indeed thanks Yiming great discussion so I have one question here from the floor about the repo results the question is whether it is possible that the most affected banks naturally decrease loan provisions and thereafter increase them back to previous levels so whether it could be that the observed pattern is basically a natural rebound and not policy induced and somewhat related to this on the PEP results with a different diff where you focus on the announcement effects they're very strong but then in the chart you also show that basically both lines again converge at the end of the sample so there seems to be also a strong reversing for the non-eligible and what what could be driving that so it's sort of this shrinking in the gap yeah so basically how much is policy induced and how much is sort of a natural rebound as fire sales go away. Yes thanks so much these are both excellent questions let me maybe start with the PEP analysis in this gap between more and less repeligible funds and what can explain the sort of shrinkage over time now one thing that I would like to say is that we know that our programs have spillover source on non-eligible assets that has been documented sort of with other programs that these introduced for example CSPP the corporate month purchase program did have spillover so so on non-eligible bonds but secondly there was a you know there was sort of a tough question in this question which is to say how come this sort of red dotted line of less repeligible funds converges to the blue line and what is interesting is that if we saw this graph again you would see that this convergence rapidly happens after April 9 which is that famous Fed intervention that Yiming has looked in her paper and others have looked for the US and remember that the red dotted line are funds that are much more exposed to US issued securities than the blue line and we know that April 9 intervention where Fed basically announced that they will be supporting fallen angels had a very important impact on those funds that hold this particular type of asset so actually our evidence would square again this is April 9 importance in terms of the Fed intervention because that's actually where the two lines really converge to each other so definitely spot on questions on the repo results I mean again we do struggle with some multiplicity of events and there is a of course the the the access to the to the bridges is is an endogenous choice so what we showed is sort of some association between bridge bridge operations and the repo lending we do have a setup where we look at the actual take up in the LTRO so when the question is is it really policy intervention or is this a natural rebound you know the way we try to sort of target that particular question is that we look at those banks that actually took up liquidity in the bridge LTRO and compare them to the other exposed banks and we do see that they have increased the amount of their lending to funds in the repo market so that's sort of as as good as we could do for now in terms of sort of isolating narrowing down the effects of policy intervention there thank you very clear another question that comes up is on the eligibility criteria for PAP and but you could say a little bit more about sort of other differences maybe in terms of fund characteristics across the eligible and non-eligibility groups I mean you know should we think of one of these groups as having more liquidity risks and another is this helping your results or maybe not yes thank you so we looked at sort of the most obvious uh uh fund fund characteristics that literature looks at like performance like flows like size and ex ante these two groups of funds are remarkably similar and you could also see sort of in this parallel trend for the performance for example that I showed but we have sort of the same for flows but we also again we looked at the size of assets under management and so on these are very so this was sort of one goal of our analysis is to narrow down a set of funds that are quite similar ex ante and then we could sort of really think what we are looking at in terms of this divergence in performance that this explosively driven and related to this PAP eligibility so you know we have some summary stats in the in the in the paper uh that show that on uh many of the key characteristics these funds two groups of funds are largely similar look can I ask one quick I mean it's not a sort of a thought yeah Roberto go ahead sure hi Mary um so it feels to me a little bit um like we've been talking a lot about exposed um actions you know and situations and I wonder if like how much are we thinking about ex ante implications of those exposed actions and interventions and not not that I have any you know I mean like maybe you call me old-fashioned you know there's this always this concern but I feel like we're not talking too much about that I wonder if that's something you guys think about or I don't know no I think you're raising a very important bigger picture question Roberto uh and I think this question pertains to both sort of the analysis of what is the exposed effects of some of these interventions but also the question as such of you know if we grant some kind of access to the central bank balance into investment funds what kind of effects will that have on incentives to invest in liquidity to manage the risk and so on so I think this is you know it's it's an extremely important question for both exposed analysis of the the effects of existing tools but also sort of a bigger picture question of you know if we introduce new tools or if we introduce new types of ways in which investment funds could be supported liquidity crisis what kind of effects will it have on their extent incentives I completely agree thanks for this question so and then the last question from Sebastian and maybe somewhat related it's also a bigger picture which you don't directly maybe address but still it would be curious to hear your views on this which is about regulation so now in your conclusions you talk a lot about should we give access to the balance sheet of the central bank but to what extent could part of this be addressed through reform of investment fund regulations such as limiting redemptions gatekeeping and the like yes another very important question so there are also I think now a number of papers that actually looked at some of the effects of some of the regulations that were introduced post financial crisis to to presumably limit liquidity risk in funds but I think the it's a mix back whether they limited the risk or actually precipitated some of the runs but that is definitely again the question on the table and again Yeeming's work speaks to that sort of this liquidity transformation done by the sector what does it mean in terms of you know the exposure to liquidity risk should we regulate the liquidity holding should we impose some minimum liquidity requirements on the sector I think this is a very important question on the table and indeed it could be something that that could reduce the liquidity risk exposure but actually going back to Hubertus point it will also have some repercussions for how these how these funds operate and and their business model and some of the financial market repercussions so I think that it's definitely very important to to think about and indeed something that regulators are thinking about what have we learned from this liquidity crisis and which interventions worked and which did not absolutely great so thank you Marie and your co-authors for this interesting paper