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

Suggested Citation

Fein, Melanie L., Shooting the Messenger: The Fed and Money Market Funds (March 30, 2012). Available at SSRN: or

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