The Financial Stability Board published its "FSB G20 Implementation Monitoring Review Interim Report," which tells us, "At the request of the G20, the FSB is undertaking a strategic review of its work to encourage and monitor the implementation of the agreed G20/FSB post-financial crisis reforms. The review is led by an independent external chair, Randal K. Quarles (former FSB Chair and former Vice Chair for Supervision of the US Federal Reserve Board)." (Note: Register soon for our upcoming Money Fund University, which is Dec. 18-19 in Pittsburgh.)
They explain, "This interim report outlines the FSB's role in monitoring and reporting on implementation of FSB/G20 financial sector reforms. It looks at the implementation history of the main G20 financial reforms over the past 15 years, including policy measures to address too-big-to-fail, nonbank financial intermediation reforms, OTC derivatives market reforms, Basel III, and recommendations on crypto-asset markets and activities. The report provides an initial assessment of how well implementation of these recommendations is progressing. In particular, the report shows that full, timely and consistent implementation has not been completely achieved."
The Executive Summary says, "Some NBFI business models can pose significant risks to global financial stability due to their potential to amplify stress and propagate shocks across the financial system. Episodes such as the market turmoil of March 2020, in the context of a global pandemic exposed vulnerabilities in the NBFI sector, including excessive liquidity demands and structural mismatches that required public intervention. While significant progress has been made by jurisdictions in implementing policies to address these risks, implementation remains uneven across jurisdictions in certain areas. Key gaps include implementation of recommendations to manage the vulnerabilities arising from liquidity mismatch in money market funds (MMFs) and open-ended funds (OEF), and data collection and sharing of securities financing transactions (SFTs))."
Discussing "Money Market Funds" (on page 23), they write, "Adoption of the 2012 IOSCO recommendations to reduce the run risk of MMFs is well-advanced, and furthest along in the largest MMF markets. IOSCO issued policy recommendations in October 2012 that provided the basis for common standards of regulation and management of MMFs across jurisdictions. IOSCO regularly monitors implementation of some of these reforms, and the FSB publishes the findings in its Annual Report. IOSCO's annual monitoring covers the recommendations relating to valuation practices of MMFs; liquidity management for MMFs; and a stable Net Asset Value (NAV)."
The piece continues, "IOSCO has also published peer reviews on implementation of the reforms and in 2020 a consistency review covering the nine largest MMF domiciles and the recommendations in the three areas above. As of September 2024 all FSB members adopted the fair value approach for valuation of MMF portfolios. In addition, all FSB jurisdictions except five have liquidity management reforms in effect. These five jurisdictions account for a very low percentage of MMF assets under management across FSB jurisdictions. Finally, 11 of the 12 FSB jurisdictions that permit MMFs offering a stable NAV have implemented the IOSCO reforms to address the risks and issues that may affect the stability of such MMFs."
It states, "IOSCO's 2020 review found that the policy measures in nine jurisdictions representing about 95% of global net MMF assets are generally in line with the IOSCO recommendations. However, there were deficiencies in these reforms that made MMFs susceptible to sudden and disruptive redemption -- for instance, regulatory thresholds that may give rise to cliff effects. The FSB therefore revised its MMF recommendations (discussed below)."
On page 27, the report reiterates, "The FSB, in collaboration with IOSCO, set out in October 2021 policy proposals to enhance MMF resilience, including with respect to the appropriate structure of the sector and of underlying short-term funding markets. A 2024 FSB review found that progress in implementing the 2021 policy proposals had been uneven across FSB member jurisdictions, and concluded that further progress on implementing the FSB policy toolkit would be needed to enhance MMF resilience and limit the need for extraordinary central bank interventions during times of stress."
It adds, "For example, by early 2024 seven jurisdictions had introduced new policy tools or recalibrated existing ones, 88 while others were in the process of developing or finalising their reforms. These findings are also relevant for IOSCO when it revisits its 2012 Policy Recommendations for MMFs in light of the 2021 FSB report. The FSB will assess in 2026 the effectiveness of its 2021 policy proposals to enhance MMF resilience."
In other news, a statement titled, "Moody's Ratings' Money Market Funds' Aaa-mf Assessments Unaffected by the Change in Banks Methodology," states, "Moody's Ratings ... announced that recent changes in its Banks methodology and the resulting rating actions do not impact the Aaa-mf assessments of prime money market funds (MMFs). Prime MMFs are investment vehicles that invest in a variety of short-term, high-quality debt instruments, mostly issued by banks, such as commercial paper and certificates of deposit, aiming to provide liquidity and capital preservation. None of the banks with downgraded ratings are included in the portfolios of Moody's-assessed funds. Instead, these portfolios maintain diversified holdings across various issuers, including exposures to banks with upgraded ratings, reinforcing the funds' overall credit and stability profiles. This diversification minimizes the impact of any single credit event or downgrade, ensuring that the credit quality of the funds' overall portfolio remains robust."
It explains, "We evaluate prime MMFs through our Money Market Funds assessment framework, providing a comprehensive view of a fund's investment quality. The framework includes analysis of both the Portfolio Credit Profile and the Portfolio Stability Profile. While the Portfolio Credit Profile assesses the credit quality and maturity of individual investments, the Portfolio Stability Profile evaluates the funds' asset profile, liquidity, and exposure to market risk. The diversified nature of prime MMFs, the short-dated and high quality of their investments, coupled with high liquidity levels, ensure that the overall credit and stability profiles of the portfolios remain strong."
Finally, they add, "Our Money Market Fund assessments, designated with the '-mf' modifier, are opinions on the investment quality of shares in mutual funds and similar vehicles that primarily invest in short-term fixed income obligations. They are not credit ratings." For more, see these Crane Data News stories: "Moody's Tweaks MMF Methodology" (1/14/19), "Moody's New Bank Rating Methodology Positive for Money Fund Ratings" (3/20/15) and "Moody's New Methodology Goes Live; Lots of Dropped AAA Ratings" (5/20/11).
