Reforming Money Market Funds
10 Pages Posted: 19 Jan 2011 Last revised: 20 Feb 2012
Date Written: January 14, 2011
The current stable-NAV model for prime money market funds exposes fund investors and systemically important borrowers to runs like those that occurred after the failure of Lehman in September 2008. This working paper, by the Squam Lake Group, argues that, to reduce this risk, funds should have either floating NAVs or buffers provided by their sponsors that can absorb losses up to a level to be set by regulators. We suggest alternative designs for such a buffer, as well as considerations that should be taken into account when determining its required size.
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