Shooting the Messenger: The Fed and Money Market Funds
236 Pages Posted: 19 Mar 2012 Last revised: 3 Apr 2012
Date Written: March 30, 2012
To some in the MMF industry, the Fed seems on a mission to eradicate MMFs from the financial system. Although the Fed has no direct regulatory jurisdiction over MMFs, the Fed is pushing for major regulatory changes that MMF representatives say would destroy this $2.5 trillion industry. MMFs serve as efficient short-term cash management vehicles and investments for corporate treasurers, pension funds, and individual investors. They are major purchasers of commercial paper issued by U.S. businesses to finance their payrolls, inventory, and cash flow. They also hold large amounts of securities that finance municipalities. They have a stellar record of safety, far superior to that of banks.
Then why is the Fed attacking this important financial sector? This paper examines the reasons cited by the Fed and finds them to be misleading and wrong.
Keywords: money market funds, money market mutual funds, MMFs, Federal Reserve, SEC, commercial paper, asset-backed commercial paper, securitization, ABCP, Bernanke, Tarullo, Volcker, Gorton, systemic risk, shadow banking system, runs, Lehman, Bear Stearns, liquidity, capital buffer, financial crisis
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