Lobbying group PreserveMoneyMarketFunds.Org issued a statement yesterday that included recent letters from New York, Ohio and Pennsylvania County associations opposing further money fund regulatory changes. The group's release says, "The SEC's push for structural changes to money market funds (MMFs) continues -- but so does the outcry of opposition from those who rely on MMFs and will be harmed by the SEC's proposed changes. Recently, a number of county associations from across the country have spoken out via letters to the SEC." (See the letters here from the New York State Association of Counties, County Treasurers Association of Ohio, and the County Commissioners Association of Pennsylvania.)
The New York letter states, "The mission of the New York State Association of Counties is to represent, educate, advocate for, and serve member counties and the thousands of elected and appointed county officials who serve the public. To that end, NYSAC has been monitoring the Securities and Exchange Commission's proposal that would drastically change the structure of money market funds, and limit the investment options for counties. New York State's county governments are required to keep cash in accounts with a stable principal value. For over 40 years money market funds have filled this role in county governments' cash management plans by providing a safe and secure investment mechanism that offered historically higher yields than traditional bank savings accounts."
It adds, "Money market funds hold more than half of the short-term debt -- about $85 billion -- that state and local governments borrow to pay for public projects such as road and bridge construction, water and sewage treatment facilities, hospitals, and affordable housing. This source of financing allows counties to build, maintain, and improve vital infrastructure without requiring that taxpayers pay exorbitant interest rates for capital projects. The historical stable share price of money market funds has created a useful investment option for individuals, institutional investors, and state and local governments. NYSAC believes that forcing money market funds to change their $1.00 per-share price and "float" their net asset value (NAV) could decrease the value, and therefore the investor demand for money market funds."
The Ohio letter explains, "County governments in Ohio operate under legal constraints or other policies that prevent them from investing in instruments without a stable value. If money market funds are required to float with their NAVs, many counties in Ohio would be forced to use alternative funds that are less regulated, less secure, and less liquid. Having access to 100% of money invested in a money market funds when needed is another critical attribute. Holding back a portion of an investor's money would drive investment away from the funds. Either of these proposed changes could severely damage the ability of counties to use money market funds."
Pennsylvania's County group comments, "In 2010, the SEC reinforced the regulations covering money market mutual funds. We believe that further regulations involving the adoption of a floating NAV, would cause many of our members to divest a significant percentage of their investments in these funds. Our members would then have to look at other products that, in turn, could be more susceptible to market conditions, more difficult to account for and manage, more likely to pose greater market risks, and more expensive, increasing the costs and fees associated with investing. To avoid these negative consequences, we believe that any money market fund reforms must not allow for a change in the fundamental stable net asset value feature."
PreserveMoneyMarketFunds.org adds, "The message is clear and consistent from counties and other local government entities across the country. Structural changes to MMFs such as a floating NAV or redemption restrictions on assets would severely hamper cash management and financing at the local level. MMFs are working and playing a key role in our economy. Hopefully, the SEC is listening to the growing chorus of groups who rely on MMFs that the proposed changes are a bad idea."
In other news, The Wall Street Journal reports that "U.S. Money-Market Funds Slash Lending to Euro-Zone Banks in June - Fitch citing recent Fitch Ratings statistics. The article says, "U.S. prime money-market funds cut lending to euro-zone banks to a record low in June as concerns about Europe's debt crisis ramped up, according to a Fitch Ratings report. These investors slashed the amount of euro-zone bank debt they held by 33% from May, Fitch said Wednesday, marking a resumption of last year's dumping of assets from the troubled region. Money-market funds have reduced their euro-zone holdings by 80% since May 2011, but virtually all of the decline occurred last year."
The piece adds, "Euro-zone bank debt makes up about 8% of the total holdings of the 10 largest U.S. prime money-market funds, or about $49 billion, down from 30%, or $230 billion, in May 2011. Much of that money shifted to Japanese banks, which at 11.8% of holdings now make up a larger share of funds' assets than the euro zone for the first time." (See also, Crane Data's July 13 News "European Money Fund Holdings Drop Back to Near Record Lows in June".)