Industry Looks at Horizon for Money Funds Regulation
Industry participants, including Bank of America, are predicting what new regulations for money market funds could look like, Barron’s reports. Large withdrawals from prime funds in March 2020 prompted regulators to step in with a liquidity facility, among other supports last year. The volatility also moved Fed officials to consider new rules to limit the need for future government interventions and to improve money funds’ resilience in severely stressed market conditions, Barron’s reports. A recent industry roundtable focused on the reality of the events of last March and the actual experience of money market funds by analyzing proprietary data and asking fund managers to detail the behavior of money market funds and money market fund investors in March 2020. The roundtable produced several takeaways that could inform how regulators proceed with money fund regulation. The roundtable’s experts concluded that addressing problems in the short-term funding markets requires more than just reforms to money market funds. The group wrote that because money market funds are just one element in the short-term funding markets, eliminating money market funds would not make these markets more resilient, and the short-term funding markets will continue to be a source of stress to the financial system. The group acknowledged that the March 2020 market volatility did underscore the need to consider strengthening the resiliency of liquidity in the short-term funding markets and that before considering money market fund reforms, policymakers should focus instead on the functioning of the short-term funding markets, which are “flawed and broken,” especially during periods of stress. Meanwhile, lawyers from Dechert provided a comprehensive review of money market fund regulation since the 2008 financial crisis and an analysis of the direction regulation could be headed.