Wild to Conservative: Bringing European Money Market Funds into the Fold

The umbrella term “shadow banking” stands to obscure the fact that this part of the financial economy is composed of very different entities with divergent roles and interests. This paper questions the tendency to lump them together as part of an obscure financial nebula and argues that an important first step to understanding this part of the economy is shining a light on the actual actors of which it is composed, their ideas and interests. Thus, the paper zooms in on European money market funds (MMFs), an important subset of shadow banking entities, which holds an estimated combined €1tn in assets, but nevertheless remains understudied. The paper departs from economic sociologist Simone Polillo’s theory of financial conflict, which sees financial terrain as constructed around conflict between “conservative bankers,” who restrict access to money, and “wildcat bankers,” who extend that access. It argues that MMFs began as “wildcat” alternatives to traditional banking in the late twentieth century but that following the crisis their position has come to approximate that of “conservatives” that must compete with a new generation of “wildcats.” This is the result of a combination of factors. First, MMFs’ business models are challenged by the current low interest environment. Second, since the crisis MMFs are increasingly regulated and provided with implicit or explicit state guarantees, a process that could be pushed even further under new plans for a European Capital Union. The trajectory of European MMFs, then, illustrates one way in which financial markets expand and become institutionalized.