Late last week, Fitch Ratings published a release entitled, "Fitch: Fed Reverse Repos Not Only About Rates for Money Funds," which says, "Money market funds (MMFs) may be more willing to rely on the Federal Reserve for future funding if the Fed's new overnight reverse repo facility becomes a more permanent fixture in money markets, Fitch says. If the Fed's facility becomes permanent and allows a full allotment allocation to eligible counterparties, we believe money funds will increase reliance on the facility and allocate larger amounts on a consistent basis. This could change the current environment in which money funds seek to maintain relationships with dealers even at below-market rates as a hedge against limited supply." (NOTE: Fidelity's Nancy Prior will be giving the keynote address Tuesday at iMoneyNet's Money Market Expo conference. The speech is embargoed until 9:30am, but we'll excerpt her comments soon thereafter. The MMX conference is a competitor to Crane's Money Fund Symposium, which will be held June 23-25 in Boston.)
The Federal Reserve's latest Z.1 "Financial Accounts of the United States" statistical release (formerly the "Flow of Funds") for the Fourth Quarter of 2013 was published late last week, and the four tables it includes on money market mutual funds show that the Household sector remains the largest investor segment, and that "Time and savings deposits" has just surpassed "Security repurchase agreements" as the largest investment segment. Table L.206 shows the Household sector with $1.100 trillion, or 41.1% of the $2.678 trillion held in Money Market Mutual Fund Shares as of Q4 2013. Household shares increased by $40 billion in the 4th quarter, but they fell by $10 billion during 2013. Household sector money fund assets remain well below their record level of $1.582 trillion at yearend 2008.
The March issue of Crane Data's Money Fund Intelligence was sent out to subscribers on Friday morning. The latest edition of our flagship monthly newsletter features the articles: "Commissioners Push Alternatives in Reform Debate," which reviews recent SEC comments on pending regulations; "Federated Investors Debbie Cunningham," which interviews Federated's CIO for Global Money Markets; and, "Cash Breaks $10 Trillion; Deposits Continue Surging," which reviews the continued growth in bank deposits. We also updated our Money Fund Wisdom database query system with Feb. 28, 2014, performance statistics and rankings last night, and we sent out our MFI XLS spreadsheet earlier. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our February 28 Money Fund Portfolio Holdings data are scheduled to go out on Tuesday, March 11.
U.S. Securities and Exchange Commission Commissioner Daniel M. Gallagher took another opportunity to blast capital requirements and banking regulations for investment funds, and warn of the threat of FSOC, at "Remarks Given at the Institute of International Bankers 25th Annual Washington Conference Monday. He didn't say much on pending money fund regulations, but comments, "Before I begin, I'd like to point out that two years ago, I spoke at this conference and discussed the Financial Stability Oversight Council, or FSOC, in great detail. I spoke about the inherently political nature of FSOC, how it had been vested with tremendous power, and how it could threaten our capital markets. So, given everything that has happened since then, I have to say: I told you so." (See also, our Jan. 16 Crane Data News, "SEC Commissioner Gallagher Blasts Capital, Banking Paradigm for Mkts".)
Late last week, U.K. local government publication "`Room 151, wrote "MMF vote delay could see reforms hit the rocks," which says, "Proposed regulations which could hit local authority investments in money market funds (MMFs) could be scuppered by a decision to delay a vote on the matter during a stormy session of a European Parliament committee. Last month, representatives of the MMF investment industry, along with investors from the private and public sector visited Brussels to campaign against the changes. And last week, the European Parliament's economic and monetary affairs committee (ECON) voted 23 to 15 to delay a vote on the issue, after some members complained that the issue had not been discussed properly."
The Wall Street Journal's Andrew Ackerman wrote in a blog post late Friday, "SEC's Piwowar: Give Investors Money-Fund Choices," which revealed that one SEC Commissioner is pushing to give fund groups and investors a choice between a floating NAV and redemption gates and fees. The online version of the Journal comments, "As U.S. securities regulators move to finalize long-awaited rules aimed at reducing risks to the $2.7 trillion money-market mutual-fund industry, one official wants investors to have greater choice in the types of funds in which they can invest. Michael Piwowar, a Republican member of the Securities and Exchange Commission, said investors should be able to choose whether to invest in funds that float in value or those with stable share prices that can restrict redemptions during periods of market tumult."
Preparations are underway for Crane Data's 6th annual Money Fund Symposium, which will be held June 23-25, 2014 at The Renaissance Boston Waterfront. The Agenda and the brochure are now available via PDF and on the Symposium website (www.moneyfundsymposium.com), and we are now accepting registrations ($750) and hotel reservations. (Brochures were recently e-mailed to past attendees and Crane Data subscribers, but contact us at email@example.com to request the full one.) Last year's Money Fund Symposium in Baltimore attracted over 450 attendees and over 30 sponsors and exhibitors, making it the world's largest annual gathering of money fund and money market professionals. Participants include money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators.
ICI's latest "Trends in Mutual Fund Investing, January 2014" shows that money fund assets decreased by $10.5 billion in January, after increasing $45.1 billion in December and $4.8 billion in November. For calendar 2013, ICI shows money fund assets up by $25.0 billion, or 0.9%. The Institute's January asset totals show a sharp drop in stock fund assets and a rebound in bond funds (up $28.5 billion in January after being down $34.2 billion in Dec.). (Bond fund assets declined by $124.4 billion in 2013.) Money fund assets rebounded in the latest week, but they've fallen by $22 billion month-to-date in February through 2/26. ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which verified our reported jump in CD holdings and plunge in Treasuries. (See Crane Data's February 13 News, "CD, TD Portfolio Holdings Jump, Treasury, Agencies Plunge in January.")
The Federal Deposit Insurance Corporation released its latest "Quarterly Banking Profile yesterday, which showed that "Deposit Growth Remains Strong" and that uninsured noninterest bearing transaction accounts left over from the temporary "TAG" (transaction account guarantee) program continue to remain, and even grow, in the largest banks. In a press release entitled, "FDIC-Insured Institutions Earned $40.3 Billion in the Fourth Quarter of 2013," FDIC Chairman Martin J. Gruenberg comments, "The trend of slow but steady improvement that has been underway in the banking industry since 2009 continued to gain ground. Asset quality improved, loan balances were up, and there were fewer troubled institutions. However, challenges remain in the industry. Narrow margins, modest loan growth, and a decline in mortgage refinancing activity have made it difficult for banks to increase revenue and profitability. Nonetheless, these results show a continuation of the recovery in the banking industry."
Federated Investors filed its Form 10-K Annual Report with the Securities & Exchange Commission last Friday, and the document contains a number of comments on factors impacting the money market fund business and regulatory issues. On the subject of "Historically Low Short-Term Interest Rates," Federated writes, "For several years, the Board of Governors of the Federal Reserve System (the Governors) have kept the near-zero federal funds rate unchanged and short-term interest rates continued at all-time low levels. In certain money market funds, the gross yield earned by the fund is not sufficient to cover all of the fund's operating expenses due to these historically low short-term interest rates. Since the fourth quarter 2008, Federated has voluntarily waived fees (either through fee waivers or reimbursements or assumptions of expenses) in order for certain money market funds to maintain positive or zero net yields. These fee waivers have been partially offset by related reductions in distribution expense and net income attributable to non-controlling interests as a result of Federated's mutual understanding and agreement with third-party intermediaries to share the impact of the waivers."
New SEC Commissioner Kara Stein talked Friday at the "SEC Speaks" Conference and commented on short-term funding and money markets last week in a Reuters story "SEC's Stein calls for more reforms to short-term lending market". She said Friday, "Our lessons from the financial crisis are not exclusively addressed by the Dodd-Frank Act. We must also think proactively of ways to mitigate threats to our financial system. During the depths of the financial crisis, the true fragility of our financial system was revealed as financial tidal waves washed over the global economy. I was working in the Senate as the crisis unfolded, and I can assure you that I will forever remember those frightening times in 2008 and 2009."
The Federal Reserve released the minutes from 2008 during the height of the Subprime Liquidity Crisis Friday, which showed that the Board had little appreciation for the damage that the bankruptcy of Lehman Brothers was about to inflict upon markets and upon the world economy. (They erroneously thought AIG was larger risk to money funds than Lehman.) The Fed's "Meeting of the Federal Open Market Committee on September 16, 2008" quotes Bill Dudley, "Now, the Lehman filing has also intensified the pressure on Morgan Stanley and Goldman Sachs in a number of respects. The Lehman failure means that investors now view the debt of Morgan Stanley and Goldman Sachs as having much more risk than it did on Sunday. This means that these firms need bigger liquidity buffers than they had before.... Morgan Stanley experienced a modest, but not insignificant, pulling back of their counterparties and ate into their liquidity buffer by a measurable degree." (Note: Lehman Brothers had declared bankruptcy the night before, Sunday night, and Reserve Primary Fund would "break the buck" the following day, triggering a run on Prime Institutional money funds and a freeze in major portions of the money markets. See our "News" archives from Sept. 2008 for more.)Archives »