WSJ: Treasury Money Market Backstop
The Wall Street Journal writes "Treasury Department Asks Congress to Let It Backstop Money Markets," which recaps Wednesday's news about a pending Treasury Money Market Fund Guarantee program. The piece says, "The Trump administration is asking Congress for authority to develop guarantee programs for the $4 trillion money-market mutual-fund industry, as part of its broader effort to calm turmoil sparked by the novel coronavirus epidemic. The effort would require Congress to suspend restrictions on the Exchange Stabilization Fund, according to a memo viewed by The Wall Street Journal. Its use to backstop money funds during the 2008 crisis contributed to a popular uproar over Wall Street bailouts and prompted Congress to forbid such guarantees in the future." It continues, "The Investment Company Institute, the trade group representing mutual funds, said in a statement that it hadn't sought the proposal but supports it. 'This authority, even if it is not utilized, should be available to address market dislocations and protect investors,' said Paul Schott Stevens, the group's president and CEO.... The landscape of money funds has changed dramatically since the 2008 crisis, with more money now parked in stable options that mostly hold short-term Treasury debt and other government securities. Funds that invest in riskier, short-dated commercial paper hold about $1 trillion in assets, according to Crane Data LLC, publisher of Money Fund Intelligence." The Journal adds, "'Any government backstop would have to consider whether to guarantee funds that buy commercial debt, known as prime funds, which are allowed to freeze redemptions or impose fees on withdrawals,' said Peter Crane, president of Crane Data. Prime funds are a source of lending to corporate America, but they can stop buying debt and even sell assets when investors speed up withdrawals. Investors pulled about $66 billion from those funds in the past week, Crane Data show, while money has flowed into funds that hold government debt." They quote our Crane, "Prime institutional funds could withstand a few more days of this type of pounding without serious repercussions but if it got worse, you are going to start to see things get into the danger zone."
