Global Treasury news website and AFP company GTNews features several money market mutual fund related stories in its latest weekly edition. The pieces include: "The Future of MMFs: Preparing for the Second Wave of Regulation by Crane Data's Peter Crane, which "discusses the current state of money market funds (MMFs) and weighs up the odds of the various possible future changes; "Potential Regulation and the Effect on Short-term Fixed Income Markets" by Invesco's Karen Dunn Kelley, which asks, "How will the Basel III proposals on large global banking institutions and the President's working group report on increasing the regulation of US 2a-7 money market funds (MMFs) affect the short-term funding markets?"; and "Post-credit Crisis Recovery: Leveraging Tools to Help Obtain Security, Liquidity and Yield" by SunGard's Vince Tolve, which says, "As a result of the credit crisis, the money market fund (MMF) industry made some significant changes over the past several year."
Crane's article says, "Last month, the US Treasury released a document entitled Report of the President's Working Group on Financial Markets: Money Market Fund Reform Options, which laid out 'a number of options for reforms related to money market funds' intended to 'address the vulnerabilities of money market funds that contributed to the financial crisis in 2008'. Though the report doesn't strongly endorse any option and most of the more radical changes discussed remain long-shots, it is clear that further regulatory action is in store for US money market funds (MMFs), and probably for European and 'offshore' funds too."
He continues, "Of course, regulatory uncertainty isn’t the only issue MMFs are faced with. Ultra-low yields, fee waivers, consolidation, lack of supply and continued concerns over credits all have buffeted money funds and cash investors over the past year, and none of these appear to be going away any time soon. Nonetheless, MMFs in the US continue to hold US$2.8 trillion in assets, and worldwide money funds total almost US$4.9 trillion. While this is down over US$1 trillion over the past 22 months, it is still an astounding total given the near-zero yields."
Finally, Crane comments, "Almost all of the other options all also appear to have more drawbacks than benefits, according to the PWG report (and according to industry and investor feedback to date). MMF insurance, or a shift to a banking regulatory regime, involves massive change. A dual system of stable and floating MMFs also would likely invite confusion and the risk of cross-contamination. Thus, the idea of a 'private liquidity facility' or 'liquidity exchange bank' appears to have the highest odds of implementation, given its support by the mutual fund industry.... This option has issues too. But for now it's clearly the most palatable to fund groups and it's likely the least disruptive option to the broader economy.... [T]he betting is on a private liquidity backup facility being implemented to help prevent future runs on MMFs."
Dunn Kelly comments in her GT News piece, "As a result of the recent financial crises, financial regulators are seeking to design additional regulation to prevent excessive risk taking and illiquidity of the global financial system. Included in these efforts have been the Basel III proposals focusing on large global banking institutions.... The latest credit crisis has highlighted the interconnectivity between central governments and their financial institutions and while the bond market's apprehension of the European sovereign debt crisis has diminished, it certainly is not over."
GTNews also includes "Yield in the Post-crisis World" by Jim Fuell of J.P. Morgan and "The Chase for Yield" by Douglas McPhail of SWIP. The former says, "Corporate treasurers are slowly regaining the appetite for yield. But how can treasurers combine their desire for yield with their focus on liquidity and security? And where should they look for returns in this low-rate environment without significantly increasing risk?" The latter article asks, "How have money market funds (MMFs) changed in the wake of the financial crisis? And how can investors make the most of them?"
