Bloomberg writes, "Bank Strains Emerge as Brexit Collides With Money-Fund Overhaul." It says, "For U.S. banks, Brexit couldn't have come at a worse time, raising funding costs just as changes to the $2.7 trillion money-fund industry threaten to sap demand for the lenders' short-term debt.... Ripple effects from the British vote to leave the European Union are compounding strains that have been building for months as a result of efforts to make the financial system safer. Wall Street strategists predict investors will pull as much as $400 billion from U.S. prime money funds before an overhaul of the industry is completed in October. Those investors are key buyers of banks' commercial paper. With prime money funds facing possible outflows, "they aren't chomping at the bit" for commercial paper, said Priya Misra, head of global interest-rates strategy at TD Securities in New York." The piece adds, "The exodus from prime funds started last year as some investment companies converted prime funds into those that only buy government debt -- exempting them from rules beginning in mid-October that require daily net asset values to fluctuate. Now investors are leaving prime funds, to avoid floating NAVs as well as restrictions such as redemption fees. The funds’ assets have declined about 20 percent this year, or $252 billion, while government-related funds gained $245 billion, or about 21 percent, according to Crane Data LLC figures through June. Banks' reliance on commercial paper leaves them in the crosshairs during the money-fund overhaul. The potential for weaker demand from prime funds is contributing to lift financing costs. Three-month commercial paper rates have risen to about 0.63 percent, from 0.24 percent a year ago. "June is the first month that we've seen noticeable outflow from prime money funds that weren't conversions-related," said Peter Crane, president of Westborough, Massachusetts-based Crane Data. "No doubt we will see more."" In other news, Reuters posted "Floating NAVs: SEC money market fund compliance risk looms on the horizon." It reads, "With the deadline for new valuation rules on certain money market funds only months away, compliance and risk professionals at fund management firms need to confirm they have taken the necessary steps to ensure that their systems are ready, as well as having communicated how such changes will impact their clients.... Of all the changes put forward, perhaps the most difficult will be the transition to floating NAV for client sales and redemptions. "The main crux of the new reforms ... from a prime and municipal perspective in the institutional funds is that those funds have to float their NAVs," Tracy Hopkins, executive vice president at BNY Mellon Fixed Income, told a recent Thomson Reuters webinar on the SEC's impending rules. Part of the challenge for funds in calculating and posting up-to-date NAVs for their funds is the timing and frequency of intraday updates, or so-called "snaps." According to Hopkins, an industry consensus seems to be forming around three updates: 9 a.m., 12 noon, and 3 p.m., but some funds are considering an 8 a.m., 12 noon and 2 p.m. schedule."
