We examine the risk-taking behavior of money market funds during the financial crisis of
2007-10. We show that as a result of the crisis: (1) money market funds experienced an
unprecedented expansion in their risk-taking opportunities; (2) funds had strong incentives
to take on risk because fund inflows were highly responsive to fund returns; (3) funds spon-
sored by financial intermediaries that also offered non-money market mutual funds and other
financial services took on less risk, consistent with their sponsors internalizing concerns over
negative spillovers to the rest of their business in case of a run; (4) funds sponsored by –
financial intermediaries with limited financial resources took on less risk, consistent with their
sponsors having limited ability to stop potential runs. These results suggest that money
market funds’ risk-taking decisions trade off the benefits of fund inflows with the risk of
causing negative spillovers to other parts of fund sponsors’ business.