Persistence of regulatory innovation: MMMFs and financial intermediaries

Financial innovations resulting from regulation may persist even after deregulation if their fixed costs are too high in the absence of strict regulation. The entry of money market mutual funds (MMMFs) illustrates this phenomenon by substituting for thrift bank deposits. This substitutability remained even after deregulation, thereby reducing thrift bank's market share. Rising GNP allows MMMFs to gain market share that might have been acquired by banking institutions.