The European Securities and Markets Authority (ESMA) published an article on the results of the Money Market Funds (MMFs) stress tests reported to ESMA.
The results show that liquidity and credit risks would be the most impactful for MMFs, in the context of the adverse scenario. The different redemption scenarios tested however show the capability of MMFs to meet redemption requests under adverse circumstances, despite a calibration reflecting the intensity of the March 2020 stress episode.
In the article ESMA also highlights the relative proximity of the Low Volatility Net Asset Value (LVNAV) 20 bps threshold, which would be exceeded in the liquidity and credit risk scenarios. While this possibility is foreseen in the MMF Regulation, these findings support the concerns expressed in the ESMA opinion regarding the consequences of funds breaching the threshold.