Similar Investors

With the failure of Silicon Valley Bank in March 2023, the concentration risk in bank liabilities has come under scrutiny. We use detailed data on security-level holdings of U.S. Money Market Mutual Funds (MMFs) that fund banks to introduce a novel measure of port- folio similarity among investors. Our findings suggest that bank investors actively manage their asset holdings based on the similarity of their portfolios with those of other investors. Specifically, when portfolios are more similar, investors are less likely to roll over investments, anticipating higher expected joint liquidation costs. In line with this interpretation, the effect of similarity on investors’ rollover decisions vanishes for secured debt securities or securities issued by non-financial institutions. Importantly, investor similarity has consequences at the issuer bank level as the average similarity of its investors’ portfolios predicts the bank’s total funding in the following period.