Reuters writes "Money funds face multipronged threat to existence". The piece says, "Life is only going to get harder, analysts say, for money market funds, which are already imperiled by an environment in which ultra-low short-term interest rates make good returns scarce. Three new regulatory changes, all originating from the Dodd-Frank financial reform legislation, are set to take a toll on the funds' ability to earn returns and hold on to clients. One has already been implemented: a new method for assessing bank deposit insurance fees by the Federal Deposit Insurance Corp has made it harder for money funds to engage in repo agreements with U.S. banks, which no longer see an advantage in borrowing cash in overnight loans and using surplus securities as collateral. Rates money funds can earn lending cash in the repo market now are down into the single digits, and likely to stay low, even as the market itself stabilizes." Reuters adds, "If the April 1 implementation date of the new FDIC assessment added pressure to money funds, the July 21 start of two other changes to the short-term rates environment threatens them even more. Banks will get two years of unlimited insurance on nondemand deposit transactions, while also gaining new power to pay interest on demand deposits, such as checking accounts."
