N°24-24: Examining the Relationship between Bank Reputational Damage and Sponsored Money Market Fund Flows

This study examines how reputational damage experienced by banks affects their stock price and flows in affiliated Money Market Funds (MMFs). It reveals that such events depress bank valuations and induce heightened outflows from sponsored MMFs despite their financial independence from sponsoring banks. Highlighting a secondary behavioural effect, we demonstrate that investor sensitivity to reputational risks amplifies the contagion risk between banks and MMFs. The effect on MMF flows is particularly pronounced for reputational shocks related to poor governance. Our findings underscore the impact of reputational events on the stability and liquidity of financial institutions and their sponsored investment vehicles.