Will Asset Managers Dash for Cash? Implications for Central Banks

In times of stress, if the potential demand from asset managers for market liquidity approaches or exceeds dealers’ ability to intermediate, it could lead to a precautionary but disruptive dash for cash and may lead central banks to intervene. If the likelihood of such a dash for cash increases in the future, central banks may wish to consider enhancing their tool kits to provide asset managers with greater access to cash-like assets, regardless of dealers’ capacity to intermediate, while managing moral hazard and asset managers’ expectations of support from central banks in a crisis. We explore ways for central bank to use new facilities that make it easier for asset managers to convert existing assets to cash as well as possible ways to introduce new assets with liquidity that central banks would guarantee.