The Investment Company Institute and ICI Global shared their comment letter to the Financial Stability Board with us yesterday, which was the deadline for feedback in response to the FSB's "Policy proposals to enhance money market fund resilience: Consultation Report". They write, "The Investment Company Institute, including ICI Global, appreciates the opportunity to provide its views on the Financial Stability Board (FSB) Consultation Report on Policy Proposals to Enhance Money Market Fund Resilience (Report). Money market funds (which the International Investment Funds Association estimates to be about $4.7 trillion in the Americas, $1.7 trillion in Europe, and $2.0 trillion in the Asia-Pacific) are an important source of direct financing for governments, businesses, and financial institutions and of indirect financing for households. Money market funds are highly regulated, transparent, diversified, and low cost. Limiting the availability of money market funds will not reduce the demand for the type of financing currently provided by money market funds. Instead, governments, businesses, and financial institutions would likely seek more expensive, less transparent, less diversified, and less efficient forms of financing, which may have negative implications for the global financial system." (See the response letters to the FSB here.)
The letter says, "ICI and its members are committed to working with international policymakers, especially through the FSB and the International Organization of Securities Commissions (IOSCO), to strengthen money market funds, the financial markets, and the economy more generally against liquidity events like the one caused by the COVID-19 crisis. Because the United States is the largest money market fund market with $4.5 trillion in assets under management and represents 53 percent of the global money market fund industry, our responses, and the detailed economic analysis that supports our responses, focus mainly on the experiences of these US funds during March 2020. We ask, however, that the reasoning presented in this letter also be considered with respect to the FSB's evaluation of money market funds in other markets around the world."
Its "Executive Summary" tells us, "Given the important role of money market funds in the financial system, policymakers should evaluate any reform options by comparing their impact on the ability of money market funds to fulfill this role (i.e., preservation of their key characteristics) against the likely practical impact any money market fund reforms will have on making the overall financial system more resilient. Any new reforms for money market funds must be measured and appropriately calibrated taking into account the costs and benefits these funds provide to investors, the economy, and the short-term funding markets. To this end, ICI and its members have previously analyzed and offered detailed and concrete feedback on many of the policy options set forth in the Report and appreciate the opportunity to do so again in this consultation."
It continues, "Money market funds were neither the first nor the largest targets of the government and central bank intervention programs that helped a broad range of financial market participants during the COVID-19 crisis, and the relevant program should not be described as a 'bail-out' of money market funds. In an effort to contain the spread of COVID-19 in February-March 2020, governments around the world contemporaneously shut down their economies. As a result, liquidity dried up, short-and long-term credit markets ceased to function, and the flow of credit to the economy evaporated.... To prevent economic and financial collapse, governments and central banks around the world introduced a broad array of monetary policy measures and market liquidity programs to help virtually every sector of the economy. Money market funds were just one of many market participants that benefited from the broad, calming effect of the Federal Reserve's actions. Contrary to the popular conception of a 'bail out,' the amount of assets attributable to the Federal Reserve's action toward money market funds was limited compared to other actions taken by the Federal Reserve for the benefit of other sectors of the global financial system. The action also did not result in any losses to the Federal Reserve."
President & CEO Eric Pan explains, "As supported by ICI's analysis of data, the evidence clearly shows that money market funds did not cause the stresses in the short-term funding markets in March 2020. The March 2020 'dash for cash' impacted all investors -- not just US prime and European non-public debt money market funds. Money market funds are just one participant in global short-term funding markets. Therefore, policymakers should give high priority to examining the performance of all players in the market and their impact on market liquidity before finalizing policy options. Without understanding the role of other players, merely imposing new restrictions on money market funds would not address policymakers' concerns."
Discussing "Consideration of FSB Policy Proposals," the letter states, "The Report discusses a range of policy proposals for further reform of money market funds. ICI and its members have previously analyzed and offered feedback on many of the possible reforms outlined in the Report. After careful review, removing the tie between money market fund liquidity and fee and gate thresholds is the best approach to addressing the challenges money market funds experienced in March 2020. As such, we will discuss this policy proposal first. The other policy proposals will be discussed in the same order as set forth in the Report."
Finally, the comment concludes, "ICI appreciates the opportunity to comment on the FSB Report. We are committed to working with policymakers to further strengthen money market funds' resilience to severe market stress. We would welcome the opportunity to present our views in more detail to FSB members."
In related news, ICI also released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our August 11 News, "August MF Portfolio Holdings: Treasuries Plunge Again; Repo, TDs Jump")
Their MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in July, prime money market funds held 33.7 percent of their portfolios in daily liquid assets and 49.4 percent in weekly liquid assets, while government money market funds held 81.9 percent of their portfolios in daily liquid assets and 90.2 percent in weekly liquid assets." Prime DLA was up from 36.2% in June, and Prime WLA increased from 49.7%. Govt MMFs' DLA increased from 81.6% in June and Govt WLA increased from 90.0% from the previous month.
ICI explains, "At the end of July, prime funds had a weighted average maturity (WAM) of 45 days and a weighted average life (WAL) of 61 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 37 days and a WAL of 85 days." Prime WAMs were one day higher than June, while WALs were unchanged from the previous month. Govt WAMs and WALs were unchanged from June.
Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas decline from $235.89 billion in June to $187.85 billion in July. Government money market funds' holdings attributable to the Americas decline from $3,649.79 billion in June to $3,509.32 billion in July."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $187.9 billion, or 39.3%; Asia and Pacific at $92.0 billion, or 19.2%; Europe at $192.7 billion, or 40.3%; and, Other (including Supranational) at $5.8 billion, or 1.3%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.509 trillion, or 89.2%; Asia and Pacific at $131.0 billion, or 3.3%; Europe at $284.4 billion, 7.2%, and Other (Including Supranational) at $10.2 billion, or 0.3%."
