The Investment Company Institute's most recent "Money Market Fund Assets" report shows MMFs hitting record levels for the fourth week in a row and for the 9th week out of the past 10. Assets have risen by $521.3 billion, or 10.8%, over the past 12 weeks! ICI shows assets up by $607 billion, or 12.8%, year-to-date in 2023, with Institutional MMFs up $333 billion, or 10.9% and Retail MMFs up $274 billion, or 16.3%. Over the past 52 weeks, money fund assets have risen $857 billion, or 19.1%, with Retail MMFs rising by $534 billion (37.6%) and Inst MMFs rising by $323 billion (10.5%). (According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets hit a record $5.763 trillion on Wednesday, 5/17. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
The weekly release says, "Total money market fund assets increased by $13.56 billion to $5.34 trillion for the week ended Wednesday, May 17, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $9.55 billion and prime funds increased by $4.14 billion. Tax-exempt money market funds decreased by $130 million." ICI's stats show Institutional MMFs falling $0.6 billion and Retail MMFs rising $14.2 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.440 trillion (83.1% of all money funds), while Total Prime MMFs were $789.3 billion (14.8%). Tax Exempt MMFs totaled $112.7 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $14.17 billion to $1.95 trillion. Among retail funds, government money market fund assets increased by $7.44 billion to $1.32 trillion, prime money market fund assets increased by $6.77 billion to $532.04 billion, and tax-exempt fund assets decreased by $36 million to $102.09 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 67.5% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $616 million to $3.39 trillion. Among institutional funds, government money market fund assets increased by $2.11 billion to $3.12 trillion, prime money market fund assets decreased by $2.63 billion to $257.28 billion, and tax-exempt fund assets decreased by $94 million to $10.65 billion." Institutional assets accounted for 63.5% of all MMF assets, with Government Institutional assets making up 92.1% of all Institutional MMF totals.
In other news, the Federal Reserve Bank of New York posted an article on its "Liberty Street Economics" blog entitled, "Banks' Balance-Sheet Costs and ON RRP Investment," which tells us, "Daily investment at the Federal Reserve's Overnight Reverse Repo (ON RRP) facility increased from a few billion dollars in March 2021 to more than $2.3 trillion in June 2022 and has stayed above $2 trillion since then. In this post, which is based on a recent staff report, we discuss two channels -- a deposit channel and a wholesale short-term debt channel -- through which banks' balance-sheet costs have increased investment by money market mutual funds (MMFs) in the ON RRP facility."
It says, "To facilitate financial intermediation by banks during the COVID-19 crisis, starting in April 2020 for bank holding companies and in June 2020 for depository institutions, the Federal Reserve excluded central bank reserves and U.S. Treasury securities from the SLR calculation. The temporary measure reduced regulatory pressure on the size of banks' balance sheets. When the measure expired on March 31, 2021, Treasury securities and reserves were again included in the SLR calculation, increasing banks' balance-sheet costs relative to the relief period. Our research shows that these tighter balance-sheet constraints increased MMFs' investment at the ON RRP facility through a deposit channel and through a wholesale short-term debt channel."
The paper continues, "Following the expiration of the SLR relief, banks subject to the SLR had an incentive to respond to the increase in balance-sheet costs by pushing deposits toward their affiliated MMFs (for example, MMFs sponsored by an asset manager belonging to the same bank-holding company). These affiliated MMFs should have therefore seen greater inflows after March 2021 compared to MMFs that are not affiliated with banks subject to the SLR. Indeed, the chart below shows that after the SLR relief expired, MMFs affiliated with banks subject to SLR grew larger relative to other MMFs."
It states, "We find that, on average, an MMF affiliated with a bank subject to the SLR grew $2.7 billion more than a non-affiliated MMF after the SLR relief period. The effect is stronger for government funds (which are closer substitutes for bank deposits than prime funds) and for funds eligible to invest in the ON RRP (which can easily accommodate large inflows by placing cash at the facility). To highlight how the tightness of the SLR constraint affects inflows to MMFs after the SLR-relief period, we additionally show that MMFs affiliated with banks closer to their SLR requirement experienced greater inflows."
The update adds, "Banks' balance-sheet constraints also limit MMFs' investment options by reducing banks' incentives to borrow in the wholesale funding market. Banks and especially dealers affiliated with bank holding companies are key intermediaries in the repo market, obtaining a significant proportion of their funding from MMFs. From the perspective of MMFs, banks' repos are an important investment option. If tighter balance-sheet constraints incentivize banks to reduce their issuance of wholesale short-term debt securities, including overnight repos, MMFs may turn to alternative, yet similar, investment opportunities, such as the ON RRP. Indeed, the next chart shows that, while MMFs' ON RRP usage increased substantially after the expiration of the SLR relief, MMFs' holdings of Treasury-backed private repos -- which are mainly issued by banks and dealers affiliated with bank holding companies -- decreased."
The blog also says, "To identify the impact of banks' balance-sheet costs on MMFs' ON RRP investment through the wholesale short-term funding channel, we exploit the fact that a reduction in banks' supply of repos affects government funds more than prime funds, since government funds can only lend to private counterparties via repos. This portfolio restriction, in practice, constrains government funds to only lend to banks and their affiliated dealers as banks and dealers are the main repo borrowers among the set of MMF counterparties. Prime funds, in contrast, can also lend to non-financial corporations and local governments. In a regression setting, we show that the share of ON RRP investment in the portfolio of government funds increased by 19 percentage points more than that of prime funds after the SLR relief ended."
It summarizes, "In this post, we explore how banks' balance-sheet constraints impact MMFs' investment in the ON RRP facility. We identify two channels: a deposit channel and a wholesale short-term debt channel. Through the deposit channel, constrained banks push excess deposits into affiliated MMFs, causing an increase in the size of the MMF industry and, therefore, in its ON RRP usage. Through the wholesale short-term debt channel, constrained banks also reduce their demand for wholesale short-term borrowing, causing MMFs to replace their private repo lending to banks with ON RRP investment."
