Boston Federal Reserve Bank President Eric Rosengren talked on "​Towards Greater Financial Stability in Short-​Term Credit Markets" in Sweden yesterday. He said, "I will highlight that the structure of the U.​S. money market mutual fund (​MMMF) industry -- and the practice of many financial institutions to fund long-​term dollar assets with short-​term dollar liabilities -- have both helped make the global financial system susceptible to liquidity shocks and (​relatedly) to changes in the perceived credit risk of market participants. I will first discuss the role that MMMFs play in providing short-​term funding, including serving as an important source of short-​term financing for European banks. I will highlight that the current structure makes MMMFs particularly susceptible to credit shocks that can turn into liquidity problems for the whole industry -- and will suggest some ways that the industry could be made more resilient. And I will then turn to the practice among some European banks of funding long-​term dollar assets with short-​term paper purchased by MMMFs. This too, has proved to be a structure that makes short-​term credit markets susceptible to liquidity shocks."

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