Money Market Fund Reform Viewed Through a Systemic Risk Lens
19 Pages Posted: 21 Aug 2011
Date Written: August 20, 2010
Abstract
This article takes the view, after a comparison of deposit accounts and money market funds, that money market funds are systemically important because they serve as both an important and convenient cash management tool for retail and institutional investors, and as a primary market for issuers of commercial paper and municipal bonds and sellers in the tri-party repo market. After considering existing money market fund regulation, this article then goes on to consider, through the lens of systemic risk analysis, whether further reform of the money market fund industry is warranted. The article concludes that attempts to float the net asset values of money market funds should not be pursued, but that there should be exploration of an insurance scheme for holders of shares in money market funds that is similar to the temporary guaranty program for money market funds implemented by Treasury in 2008.
Keywords: money market mutual funds, systemic risk, financial regulation, financial reform, deposit insurance
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