Simulation Framework for Sterling Money Market Funds

Bank of England News

Published March 27th, 2026

Detected March 28th, 2026

Summary

The Bank of England has published Staff Working Paper No. 1,177, detailing a simulation framework for sterling money market funds. The paper explores redemption capacity and liquidity requirements, suggesting that removing the 30% weekly liquid asset threshold could improve fund resilience.

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What changed

The Bank of England has released Staff Working Paper No. 1,177, which introduces a simulation framework designed to assess the redemption capacity and failure probability of sterling money market funds (MMFs) under various stress scenarios. The research highlights that front-loaded redemptions are particularly destabilizing and that the effectiveness of asset sales diminishes as market depth decreases. A key finding is that removing the 30% weekly liquid asset (WLA) threshold could significantly enhance fund resilience by mitigating cliff-edge behaviors, with most gains observed when WLA is maintained around 40%.

This working paper is for research and discussion purposes, not a regulatory mandate. However, compliance officers in the UK financial services sector, particularly those managing or overseeing money market funds, should review the findings. The paper suggests that current regulatory minimums for WLA might be suboptimal and that funds could benefit from holding higher levels of WLA to improve their resilience against redemption runs. While no immediate compliance actions are required, the research informs potential future regulatory considerations regarding MMF liquidity requirements and stress testing methodologies.

Source document (simplified)

A simulation framework for sterling money market funds: estimating redemption capacity and evaluating liquidity requirements

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.

Published on

27 March 2026

Staff Working Paper No. 1,177

By Rishabh Kumar

Money market funds (MMFs) aim to provide near-on-demand liquidity yet often hold assets that become hard to sell under stress, leaving them vulnerable to run-like redemptions. I build a simulation framework for sterling MMFs to estimate redemption capacity and failure probability across alternative redemption profiles and market-liquidity scenarios. Resilience of funds depends on both the timing of outflows and the effective liquidity of weekly liquid assets (WLA): front-loaded redemptions are most destabilising, and the benefit of asset sales shrinks as market depth thins. Removing the 30% WLA threshold effect – under which managers must consider measures to deter further redemptions – yields sizeable resilience gains by reducing cliff-edge behaviour. Under historically extreme shocks and without threshold effects, most resilience improvements come from holding WLA above the 30% regulatory minimum; in my simulations, gains concentrate around 40% WLA, with diminishing returns beyond.

A simulation framework for sterling money market funds: estimating redemption capacity and evaluating liquidity requirements