On 22 March 2021, the Bank for International Settlements (BIS) has published a working paper on “Asset managers, market liquidity and bank regulation”. The asset management sector has grown over the past decades and so has its impact on financial market liquidity. In the underlying paper the authors challenge the notion that bank regulation necessarily amplifies asset managers’ destabilizing behavior. They find that under certain conditions – when distortions in the asset management sector (here: reputational herding) make it inherently prone to excessive risk-taking – bank regulation plays a beneficial role by disciplining risk-taking in this sector.
Please find the complete paper here.