Two heavyweights came to the defense of money market mutual funds yesterday, attempting to counter the overly sensationalistic stories regarding the risk of Greek problems impacting U.S. investors. The Christian Science Monitor, in its article, "Federal Reserve chief tells US financial markets not to worry about Greece", says, "Memo to the financial markets: the Federal Reserve says the Greek financial problems should not be a problem for the US financial system even if the protest-torn country defaults. At his press conference on Wednesday, Fed Chairman Ben Bernanke described how the nation's central bank has pored over the assets of US banks and decided everything is OK -- at the moment." (Europe was also of course a topic at our Crane's Money Fund Symposium conference, which kicked off in Philadelphia yesterday. Look for coverage in the next Money Fund Intelligence.)
The article continues, "Mr. Bernanke says the Fed asked the banks to 'essentially do stress tests' -- computer simulations -- to see what would happen to their capital if Greece defaulted on its loans." It quotes Bernanke, "And the answer is the effects are very small." The Monitor explains, "Bernanke says the Fed is also monitoring the impact of the European debt problems on US money market mutual funds."
It quotes him, "The situation is similar in some sense, in that, with very few exceptions, the money market mutual funds don't have much direct exposure to the three peripheral countries [Greece, Portugal and Ireland] which are currently dealing with debt problems." The piece adds, "However, he says, the money market funds do own a substantial amount of debt issued by banks in core countries such as Germany and France. That is the reason, he said, 'why the Federal Reserve and other regulators are continuing to look at ways to strengthen money market mutual funds.'"
In another show of support, Dow Jones writes "FDIC's Bair: Not Worried About Money-Market Funds In 'Near Term'". It says, "The chairman of the U.S. Federal Deposit Insurance Corp. said Wednesday that she isn't immediately worried that the European sovereign-debt crisis will cause losses at U.S. money-market mutual funds."
The article explains, "The potential threat to those funds is "something we've been aware of for some time," FDIC Chairman Sheila Bair told reporters after a House hearing. It quotes her, "In the near term, I'm not worried about it, but I think it just underscores why we need to fix this problem."
Dow Jones adds, "Bair said investors should understand that when they put their money into money-market funds, it isn't always held in U.S. government-backed securities and may be channeled to other kinds of investments. If investors don't want to take that risk, she said, they should put their money solely into funds that invest in U.S. Treasury securities."
