The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "Prime Inst MMF Conversions, Shifts Continue: FAF Does WLA," which breaks down the latest shifts in the Prime Inst space; "Q2 Earnings Calls: Sweep Rates Take Center Stage," which quotes from recent questions over brokerage sweep programs; and, "Deposits Under Pressure from Insurance, Funding," which covers a recent speech by Lorie Logan, President of the Federal Reserve Bank of Dallas. We also sent out our MFI XLS spreadsheet Wednesday a.m., and we've updated our Money Fund Wisdom database with 7/31/24 data. Our Aug. Money Fund Portfolio Holdings are scheduled to ship on Friday, August 9, and our Aug. Bond Fund Intelligence is scheduled to go out on Wednesday, August 14. (Note: We'll be publishing our latest Form N-MFP files and revisions on Thursday, August 8. The SEC has changed the format of these files as their new regulations go into effect, so there may still be issues with our programs and collections.)
MFI's "Prime Inst." article says, "We've now seen 16 Prime Institutional money funds with over $265 billion in assets (over 1/3 of the sector) announce exits from the space to date (see the News brief on DFA at right). But now comes a decision by one to live with the new rules in a unique way. A Prospectus Supplement for First American's Institutional Prime Obligations Fund tells us, 'In July 2023, the SEC adopted amendments to Rule 2a-7 under the Investment Company Act of 1940.... [T]he Amendments will require institutional prime and institutional tax-exempt money market funds, including First American Institutional Prime Obligations Fund, to impose a mandatory liquidity fee when [they] experience daily net redemptions that exceed 5% of assets on a day. Funds subject to the mandatory liquidity fee will not be required to apply such fee if the amount of the fee is less than 0.01% of the value of the shares redeemed.'"
They continue, "It explains, 'The mandatory liquidity fee requirement will become effective on Oct. 2, 2024. In calculating the amount of the mandatory liquidity fee under Rule 2a-7, the fee amount must be based on a good faith estimate, supported by data available, of the costs the fund would incur if it sold a pro rata amount of each security in its portfolio to satisfy the amount of net redemptions. The calculation must factor in the spread costs and market impacts for each portfolio security, as described further in this supplement. A fund may assume a market impact of zero for its daily and weekly liquid assets.'"
We write in our Q2 Earnings article, “This past month, a number of earnings calls and articles discuss the continued shift from bank deposits into money market funds, and questions focused on brokerages facing pressure to pay higher rates on 'advisory' sweeps due to lawsuits and regulatory pressure."
It tells us, "Schwab's Peter Crawford was asked about 'scrutiny of advisory sweeps.' He answers, 'With respect to the Wells Fargo issue, we have provided money market fund sweep cash and -- or money market yields on bank cash for all of our fiduciary-driven investment advisory solutions already. So, I don't really see the Wells Fargo report having any kind of meaningful implications for us. We've been doing this for an extended period of time already.'"
Our "Deposits Under Pressure" piece says, "Federal Reserve Bank of Dallas President Lorie Logan recently gave a speech titled, 'A level playing field for deposit insurance,' which discussed increasing the FDIC deposit limit and other means of preventing bank deposit runs. She tells us, 'Funding risk is both one of the oldest challenges in banking and one of the most timely.... [B]ankers have long understood the importance of being prepared to meet withdrawals -- and of maintaining depositors' confidence so they don't withdraw money based on unfounded fears.'"
It continues, "Logan explains, 'But as we saw in 2023, maintaining depositors' confidence can be challenging in today's highly networked society that allows bank runs to propagate with unprecedented speed. Now ... it’s a good time to consider whether adjustments in banks' liquidity risk management or in related public policies can support a strong and vibrant banking system.'"
MFI also includes the News brief, "MMF Assets Eke Out Record $6.510 Trillion in July; Fasten Your Seatbelts." It says, Crane Data's Money Fund Intelligence XLS shows money fund assets rising by $16.8 billion in July to a (monthly) record $6.510 trillion. Over 12 months (through 7/31/24), money fund assets have increased by $607.5 billion, or 10.3%. (Our MFI Daily shows assets up $32.3 billion in August through 8/5 to $6.5384 trillion. We expect MMF totals to break $7.0 trillion by year end.)
Another News brief, "DFA Short-Term Investment Fund Converts to Ultra-Short," tells us, "An SEC filing for the DFA Short Term Investment Fund indicates that yet another internal money market fund is abandoning the Prime Institutional sector ahead of the implementation of emergency mandatory liquidity fees in October. The $15.1 billion DFA Short Term Investment Fund is converting to an ultra-short bond fund, though we couldn't confirm this with Dimensional Fund Advisors."
A third News brief, "BNY Mellon Govt MMF Liquidates," tells readers, "BNY announced that it is liquidating its MLMXX, explaining, 'The Board of Trustees of BNY Mellon Funds Trust has approved the liquidation of BNY Mellon Government Money Market Fund, a series of the Trust, effective on or about August 27, 2024.'"
A sidebar, "WSJ on Bank NIM Squeeze," says, "The Wall Street Journal covers the Q2 earnings news in, 'Yield-Hungry Wealth Management Clients Are Becoming a Headache for Big Banks,' They explain, 'Brokerage customers are still demanding more for their cash. And banks are scrambling to keep up. Across several banks with large wealth-management businesses, a common theme in second-quarter earnings reports was continuing to have to pay higher rates to hang on to brokerage customers' cash that isn't invested in things like stocks and bonds. Wells Fargo and Morgan Stanley called out increases in some of the rates they pay on certain brokerage account deposit products, and Bank of America noted a rise in rates paid on wealth-management deposits.'"
Our August MFI XLS, with July 31 data, shows total assets increased $19.7 billion to $6.513 trillion, after increasing $11.8 billion in June, $79.7 billion in May, decreasing $17.6 billion in April, $66.7 billion in March, increasing $50.0 billion in February, $87.0 billion in January, $24.5 billion in December and $219.8 billion in November. Assets decreased $39.3 billion in October, but increased $77.8 billion in September and $104.2 billion in August.
Our broad Crane Money Fund Average 7-Day Yield was unchanged at 5.02%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was also unchanged at 5.13% in July. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both averaged 5.40%. Charged Expenses averaged 0.37% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses once we upload the SEC's Form N-MFP data for 7/31/24, though this may take some time as we adjust to the new N-MFP format.) The average WAM (weighted average maturity) for the Crane MFA was 34 days (unchanged) and the Crane 100 WAM was down 1 bp from previous month at 33 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
