The ICI's latest weekly "Money Market Fund Assets" report shows MMFs falling sharply for the fourth week in a row, following four straight weeks of increases. The release says, "Total money market fund assets decreased by $19.72 billion to $4.53 trillion for the week ended Wednesday, June 30, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $16.75 billion and prime funds decreased by $3.70 billion. Tax-exempt money market funds increased by $730 million." While ICI's weekly "Assets" release shows money fund assets down by $85 billion over the past 4 weeks, they're still up by $230 billion, or 5.4%, year-to-date in 2021. Inst MMFs are up $325 billion (11.7%), while Retail MMFs are down $95 billion (-6.3%).
ICI's stats show Institutional MMFs decreasing $17.8 billion and Retail MMFs decreasing $2.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.950 trillion (87.2% of all money funds), while Total Prime MMFs were $483.9 billion (10.7%). Tax Exempt MMFs totaled $92.7 billion (2.1%). Over the past 52 weeks, money fund assets have decreased by $128 billion, or -2.8%, with Retail MMFs falling by $127 billion (-8.2%) and Inst MMFs falling by $1 billion (-0.0%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)
It explains, "Assets of retail money market funds decreased by $1.95 billion to $1.43 trillion. Among retail funds, government money market fund assets decreased by $651 million to $1.12 trillion, prime money market fund assets decreased by $973 million to $228.63 billion, and tax-exempt fund assets decreased by $326 million to $80.83 billion." Retail assets account for just under a third of total assets, or 31.6%, and Government Retail assets make up 78.4% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $17.77 billion to $3.10 trillion. Among institutional funds, government money market fund assets decreased by $16.10 billion to $2.83 trillion, prime money market fund assets decreased by $2.73 billion to $255.29 billion, and tax-exempt fund assets increased by $1.06 billion to $12.62 billion." Institutional assets accounted for 68.4% of all MMF assets, with Government Institutional assets making up 91.3% of all Institutional MMF totals.
In other news, we wrote yesterday about the Financial Stability Board's "Policy Proposals to Enhance Money Market Fund Resilience: Consultation Report." Today, we excerpt from more of the 67-page report, focusing this time on the FSB's "Policy proposals to enhance MMF resilience." They explain, "This section presents a set of policy options that aim to address MMF vulnerabilities. To assess the relative merits of these options in enhancing the resilience of MMFs and STFMs more generally, the section considers their likely effects on the behaviour of MMF investors, fund managers and sponsors; and their implications for the underlying markets, including through analysis of potential substitutes for MMFs to which investors and issuers could turn to. The assessment framework in Annex B sets out in more detail the structured approach used to arrive at a comprehensive assessment of the effects of each option."
The FSB writes, "As noted in the previous section, MMFs are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. A number of mechanisms could be used to address these MMF vulnerabilities -- they include imposing on redeeming investors the cost of their redemptions; absorbing losses; reducing threshold effects; and reducing liquidity transformation. Some of these proposals were considered in previous MMF reforms, while other proposals are novel."
They tell us, "In developing the policy options within this report, the FSB has sought to group options according to the mechanism through which they aim to mitigate identified MMF vulnerabilities, although some policy options may affect resilience through more than one mechanism." Their "Representative" options include: "Swing pricing, Minimum balance at risk (MBR), Capital buffer, Removal of ties between regulatory thresholds and imposition of fees and gates, Removal of stable NAV, Limits on eligible assets and Additional liquidity requirements and escalation procedures."
The FSB report continues, "Under each mechanism, a few representative options have been identified and are described in detail. They are accompanied by other options that are variants or extensions of the representative options. The representative options have been chosen based on: (i) their impact on the resilience of MMFs and financial stability more broadly; (ii) their scope (i.e. whether the discussion of the representative option would cover many points relevant to the variant options as well); (iii) operational and other considerations (e.g. impact on MMF industry) that may affect the feasibility of implementing these options; and (iv) their inclusion in recent reviews of MMF reform options in some jurisdictions. These representative options are presented as possible ways a jurisdiction could seek to mitigate the vulnerabilities it has identified within its sector. Nevertheless, the variants may work better in some jurisdictions, depending on the specific circumstances and features of the market."
It states, "Assessing the likely impact of these policy options on the broader functioning of STFMs also requires analysis of potential substitutes for MMFs to which borrowers and investors could realistically turn to, should the implementation of these options lead to a withdrawal of MMFs from STFMs or make MMFs unattractive for investors."
The report comments, "Even if substitutes for MMFs are readily available, `the impact of additional MMF restrictions on the aggregate supply and demand for financial intermediation is uncertain, particularly where these restrictions may lead to a shrinkage of the non-public debt MMF sector. On the one hand, as noted above, a substantial shrinkage of non-public debt MMFs in the US following previous reforms did not cause a significant reduction in the availability of short-term funding, as borrowers found alternative sources of funding. On the other hand, the reach of some alternatives may be limited; for example, while some investors can sidestep MMFs by holding assets directly, others -- such as retail investors -- may not, and direct investment would not readily meet some of the objectives of MMF investors such as diversification. This would mean issuers would depend on other types of investors to scale up their lending and borrowing costs might rise, even if only on a transitory basis."
It suggests, "Potential substitutes to non-public debt MMFs that offer cash management functions for investors include bank deposits and public debt MMFs. These products generally exhibit greater resilience and less susceptibility to runs than non-public debt MMFs. For example, prudential regulation and access to central bank liquidity in recent decades have made bank runs more isolated than runs on non-public debt MMFs. And public debt MMFs, particularly those denominated in USD, have attracted large inflows during episodes of stress, even as non-public debt MMFs experienced large net redemptions. However, the attractiveness to investors of public debt MMFs denominated in currencies other than USD is currently limited."
Finally, the FSB paper adds, "In contrast, investment-like substitutes exhibit varying degrees of resilience compared to non public debt MMFs. In certain jurisdictions, investors may decide to use short-term bond funds as an alternative to MMFs. The portfolio risks of these types of funds typically are greater than those for MMFs and they also exhibit liquidity mismatch if they allow for daily redemption of their shares, but their limited usage for cash management may offset some of these risks. Direct investment is another potential substitute available to some MMF investors, particularly institutional investors. Direct investment does not offer liquidity transformation, as investors directly bear the cost of liquidating assets, so this substitute is likely more resilient than MMFs."
