AFP on MMF Reform and Treasurers
The Association for Financial Professionals published an article, "Money market Reform, Why Treasury’s Mindset Must Change." It says, "The issuers of products that money market funds (MMFs) typically purchase will feel the impact of the new MMF regulations by the Securities and Exchange Commission (SEC) nearly as much as the funds themselves. In a recent AFP roundtable in Seattle, the treasurer of a home loan bank expressed concern that fewer funds will mean the purchase of fewer discount notes. Of greater concern to treasurers is issuing commercial paper, which is a staple of debt and a big investment for MMFs. Bankers at the roundtable said the new MMF rules would not immediately impact commercial paper, but admitted they would have a negative impact over the long term. "Big issuers may have to pay more," one practitioner predicted. In the future, companies may purchase commercial paper directly from issuers instead. "We're already seeing companies do their own counterparty risk analysis on financial institutions," said Craig Martin, executive director of the Corporate Treasurers Council. Martin has already seen companies bring investment in-house and invest in high-grade, short-term corporate bonds. From a cost/benefit standpoint, that makes sense. "On a relative basis, you're paying hedge fund fees for MMFs," said one roundtable participant. "If I were running a treasurer's office, I'd look at investing directly in the commercial paper of issuers like Chinese banks," one banker suggested. With money market funds less appealing, treasurers will need to change their mindset, roundtable participants said. "We have become a nation of idle cash sitting in the bank," said one practitioner. The problem, practitioners and bankers agreed, is the existing mindset that the board will not tolerate any losses. While corporate treasury groups are earning nothing on their investments, organizations like endowments are earning much more with relatively little risk. "The mindset of treasury professionals needs to change beyond just supporting security and liquidity," he said. "If you're not buying back shares or paying dividends, treasury should become more of an investment arm."" The piece concludes with a list of action items for treasurers. In other news, Businessweek did a piece on "Shadow Banking: Post-Crisis, Risks Remain." It reads, "Shadow banking isn't shadowy like the illicit, underground economy. It's shadowy like Me and My Shadow -- attached to regular banking at the heels and doing all of the same things at the same time. Want to borrow money? You can get a loan from a bank -- or you can do it the shadow way in the "repo" market by selling some Treasury bonds and promising to buy them back in a week for a slightly higher price, which represents the interest. Want to save money? You can deposit your cash in a bank -- or you can do it the shadow way by, say, investing in a money-market mutual fund or taking the other side of one of those repo transactions."
