Authors: Xuesong Huang and Todd Keister
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Staff Reports
Can Redemption Fees Prevent Runs on Funds?
Number 1160
August 2025
August 2025
JEL classification: G28, G23, D82
We ask whether imposing fees on redeeming investors can prevent runs on money market mutual funds (MMFs) and related intermediation arrangements. We first show that imposing a fee only in extraordinary times often leaves the fund susceptible to a preemptive run where investors rush to redeem before the fee applies. We then show how a policy that imposes a fee when current redemption demand is above a threshold, even in normal times, can make the fund run proof. We characterize the best policy of this type, which is immune to a run of any size. We show that the reform adopted in the U.S. in 2023 leaves funds vulnerable to runs in some market conditions and imposes an inefficiently large fee in others.
Author Disclosure Statement(s)
Xuesong Huang
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Todd Keister
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Todd Keister
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Huang, Xuesong, and Todd Keister. 2025. “Can Redemption Fees Prevent Runs on Funds?” Federal Reserve Bank of New York Staff Reports, no. 1160, August. https://doi.org/10.59576/sr.1160
Huang, Xuesong, and Todd Keister. 2025. “Can Redemption Fees Prevent Runs on Funds?” Federal Reserve Bank of New York Staff Reports, no. 1160, August. https://doi.org/10.59576/sr.1160
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