Money market mutual fund asset rose fractionally in the week ended Wednesday, according to the ICI's weekly data series, and Crane Data's Money Fund Intelligence Daily shows assets increasing by over $10 billion -- $7 billion Tuesday, $6 billion Wednesday, and $1 billion Thursday -- since the end of the Treasury Guarantee Program last Friday. In other news, Investment Company Institute President & CEO Paul Schott Stevens spoke at the ICI Capital Markets Conference in New York, and discussed money funds at several points.
Stevens said, "As the events that unfolded last September showed, sometimes only government has the firepower needed to stop a crisis. We saw this firsthand, when the bankruptcy of Lehman Brothers caused a money market fund to write down its net asset value below the $1.00-per-share that such funds try to maintain. After this fund broke the dollar, many other money market funds faced severe redemption pressure, even as the markets in commercial paper and municipal debt faced serious strains. As you all know, the Treasury Department and the Federal Reserve stepped up, constructed a series of fire lines, and helped restore liquidity in these markets and confidence in money market funds. This was effective crisis management."
He continued, "It's important, however, that programs created to halt a crisis don't take on a life of their own and outlast the need. That's why we are glad that the Treasury Guaranty Program for Money Market Funds had a strict one-year time limit, and expired without incident last week. No claims were filed or paid under the Guaranty Program, and Treasury collected a tidy $1.2 billion in premiums along the way. The Fed's credit facilities for the money markets will also roll off in due course."
Later in the speech, Stevens added, "As the immediate crisis of last fall eased, the leadership of ICI recognized that new rules would be needed to make money market funds even more resilient. So we took the lead, creating a Money Market Working Group to identify a comprehensive set of regulatory changes. The Group recommended, among many other things, tough new standards on liquidity, to improve money market funds' ability to respond to heavy demand for redemptions. Members of the Working Group pledged to abide by these new standards even before the SEC adopts final rules in this area. I'm pleased to note that the rules the SEC has proposed reflect many of our Working Group's recommendations. As a result of all this effort, perhaps more progress has been made on strengthening money market funds than on any other issue raised by the financial crisis."
Finally, he said, "We have just been through the worst financial crisis since the Great Depression. Mutual funds experienced significant declines in asset values, but otherwise fared reasonably well -- thanks to a regulatory foundation laid decades ago, in 1940. But building that foundation after the Great Crash took several years and a great deal of deliberation by the SEC, Congress, and the fund industry. The results of their work -- the Investment Company Act and Investment Advisers Act -- have stood the test of time.... So, one more lesson learned from the financial crisis is this: Sometimes, speed is of the essence; sometimes, deliberateness is a virtue. Wisdom lies in recognizing the difference. Let us hope our response to this financial crisis will prove as wise."
