A recent acedemic paper, "Bank Regulation and Monetary Policy: the Role of Non-​Bank Financial Institutions," written by Gara Afonso, Marco Cipriani, and Gabriele La Spada, explains, "Using a quasi-​natural experiment, we show that quantitative easing (​QE) interacts with bank regulation, impacting the size and portfolio choices of non-​banks. In 2021, upon the expiration of the Supplementary Leverage Ratio relief, banks were incentivized to reduce leverage, shedding deposits and reducing the supply of wholesale debt. We show that as a result, money-​market funds experienced large inflows and shifted their portfolios toward the Federal Reserve'​s ONRRP facility. Our results imply that when non-​banks can access the central-​bank balance sheet, they end up holding a share of central-​bank liabilities, draining reserves and affecting the impact of QE through banks. In this paper, we use a quasi-​natural experiment to show that quantitative easing (​QE) interacts with bank regulation and, by increasing banks' balance-​sheet costs, impacts both the size and portfolio choices of non-​bank financial institutions." They tell us, "​After the Global Financial Crisis (​GFC), the Federal Reserve grew its balance sheet sharply to stimulate the economy through QE, increasing bank reserves, deposits, and lever age. Concurrently, US regulators implemented several reforms that penalize banks' balance sheet expansions; the goal of these regulations is to reduce bank risk-​taking by curbing bank leverage. The most notable example of these rules is the Supplementary Leverage Ratio (​SLR), which sets an explicit limit on the amount of leverage that large banks can take. This regulatory constraint makes balance-​sheet expansions more costly for banks; moreover, since the SLR ratio is not risk-​weighted, the cost is especially high for balance-​sheet expansions associated with safe and low-​margin activities, such as intermediation in the market for repurchase agreements (​repos) collateralized by Treasuries." The piece says, "Several recent papers have highlighted the importance of banks' balance-​sheet costs in explaining arbitrage deviations in asset prices and excess volatility in money-​market rates. It is less clear, however, how the interaction of banks' balance-​sheet costs with the central bank'​s balance-​sheet policies affects non-​bank financial institutions, their portfolio choices, and, in turn, the effectiveness of QE itself. An increase in balance-​sheet costs incentivizes banks to reduce their debt. This can have two effects on non-​bank financial institutions. First, banks could push their depositors into non-​bank financial institutions that are seen as close substitutes to bank deposits, increasing the size of these non-​banks. Second, banks could also borrow less in the wholesale market, including from non-​banks, changing the portfolio composition of these non-​banks. If non-​banks have access to the central bank'​s balance sheet, they can accommodate the increase in size or change in investment opportunities by investing at the central bank." It adds, "In this paper, we identify these two effects by focusing on a key type of non-​bank financial institution, money market funds (​MMFs). We do this for two reasons. First, MMFs are both the main non-​bank substitutes to bank deposits -- with $​4.​7 trillion in assets under management (​AUM) at the end of December 2021 -- and the main providers of short-​term wholesale liquidity to large banks; therefore, when banks' balance-​sheet costs tighten, MMFs are the non-​bank financial institutions more likely to be impacted. Second, MMFs can invest at the Federal Reserve through the ON RRP, a facility set up to support the implementation of monetary policy; MMFs are the main users of this facility, representing 82% of total usage on average between the facility inception in September 2013 and December 2021. As Figure 1 shows, investment in the ON RRP by MMFs increased dramatically between April 2021 and December 2021, accompanied by a reduction in MMF holdings of private overnight Treasury repos. Indeed, overall ON RRP take-​up grew from a few billions at the beginning of April 2021 to $​1.​9 trillion at the end of December 2021, with 91% of the increase due to MMFs. To identify the impact of banks' balance-​sheet costs on the size of the MMF industry, we compare MMFs affiliated with banks subject to the SLR regulation with other MMFs. The former should receive larger investor flows around the end of the relief, as their affiliated banks try to shed depositors to improve their SLR. The reason is twofold: banks have an incentive to keep their clients within the company, and investors have an incentive to stay within the same company to lower their switching costs. Consistent with this hypothesis, we find that in the two quarters around the end of the SLR relief, the AUM of MMFs affiliated with banks subject to the SLR increased more than the AUM of other MMFs by an average of $​3.​4 billion per fund, for a total of $​364 billion."

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