The Bank of England published a staff working paper presenting a simulation framework for sterling-denominated money market funds (MMFs) to estimate redemption capacity and failure probability under different redemption profiles and market-liquidity scenarios. The analysis finds that MMF resilience is driven by both the timing of investor outflows and the stress-usable liquidity of weekly liquid assets (WLA), with policy-relevant “cliff-edge” behaviour around the 30% WLA threshold materially worsening outcomes. The framework tests alternative redemption paths and market environments, including a frozen-market benchmark where funds rely on cash and maturing assets, and counterfactuals that allow sales of government assets and (as an extension) certificates of deposit under varying market depth. Results indicate that front-loaded redemptions are the most destabilising and that the resilience benefit from asset sales falls as market depth deteriorates, implying that measured WLA can overstate effective liquidity in stress. Removing threshold effects linked to the 30% WLA minimum delivers sizeable resilience gains by reducing run incentives, and under historically extreme shocks most improvements in the simulations come from holding WLA above the 30% floor, with gains concentrated around 40% WLA and diminishing returns beyond. The paper is published to elicit comments and debate and does not represent Bank of England policy.
Bank of England 2026-03-27
Bank of England publishes simulation study of sterling money market funds highlighting resilience gains from removing 30% weekly liquid assets threshold effects
The Bank of England released a staff working paper introducing a simulation framework for sterling-denominated money market funds to assess redemption capacity and failure probability under various scenarios. The study highlights that MMF resilience is influenced by investor outflow timing and the liquidity of weekly liquid assets, with significant risks around the 30% WLA threshold. Findings suggest maintaining WLA above 30% enhances resilience, particularly under extreme shocks, while front-loaded redemptions and reduced market depth undermine stability.