rec_49

(49) External support provided to an MMF with a view to maintaining either liquidity or stability, or de facto having such effects, increases the contagion risk between the MMF sector and the rest of the financial sector. Third parties, including credit institutions, other financial institutions or legal entities in the same group as the MMF, providing such support could have an interest in doing so, either because they have an economic interest in the management company managing the MMF or because they want to avoid any reputational damage in the event that their name is associated with the failure of an MMF. Because those third parties do not always commit explicitly to providing or guaranteeing the support, there is uncertainty whether such support will be granted when the MMF needs it. In those circumstances, the discretionary nature of sponsor support contributes to uncertainty among market participants about who will bear losses of the MMF when they do occur. That uncertainty likely makes MMFs even more vulnerable to runs during periods of financial instability, when broader financial risks are most pronounced and when concerns arise about the health of the sponsors and their ability to provide support to affiliated MMFs. For those reasons, external support for MMFs should be prohibited.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-30 · Text as adopted (Official Journal); later amendments are not incorporated in this text.