Opening the Gate to Money Market Fund Reform

73 Pages Posted: 7 Jun 2018

See all articles by Hester Peirce

Hester Peirce

affiliation not provided to SSRN

Robert Greene

Program on International Financial Systems

Multiple version iconThere are 2 versions of this paper

Date Written: 04/02/2014

Abstract

For decades, money market funds (MMFs) were thought to be safe, low-risk investments. The financial crisis of 2007?2009 cast MMFs in a new, less favorable light, which prompted calls for reform. Our paper offers a reform alternative that builds on MMF boards of directors and their well-established responsibility for making key decisions for MMFs. After a brief overview of the regulatory history of MMFs, we describe the responsibilities that boards have under current law, the problems MMFs encountered during the crisis, and market and government responses to these problems. Evidence shows that during the crisis, investors were discerning in deciding whether and when to run; more risky, less liquid funds experienced higher volumes of redemptions. This finding, along with our assessment of funds' boards of directors' responsibilities, helps to lay the groundwork for considering the various options for addressing problems still facing MMFs, including our proposal to allow boards to gate their funds when faced by potentially destabilizing redemption pressures.

Suggested Citation

Peirce, Hester and Greene, Robert, Opening the Gate to Money Market Fund Reform (04/02/2014). Mercatus Center Paper, Available at SSRN: https://ssrn.com/abstract=3191360 or http://dx.doi.org/10.2139/ssrn.3191360

Hester Peirce (Contact Author)

affiliation not provided to SSRN

Robert Greene

Program on International Financial Systems ( email )

134 Mt Auburn St.
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
31
Abstract Views
334
PlumX Metrics