Daily Links Archives: August, 2012

Today's New York Times writes "A Third Option for Regulators in the Money Market Fund Fight". It says, "[T]he commission dropped [potential money fund] reforms last week, after it became clear that a majority of its commissioners weren't going to vote for the reforms. This was a big win for the mutual fund industry, which says some reforms made in 2010 are sufficient. The industry also argues the latest reforms would needlessly damage a popular investment product. The regulators, however, may be able to effectively override the S.E.C. They can do that by involving the Financial Stability Oversight Council, a special committee of senior regulators set up after the crisis by the Dodd-Frank financial overhaul legislation.... After the money fund reforms were blocked at the S.E.C., much speculation began on how the council might act. At first, there appeared to be two separate paths laid out in Dodd-Frank. But both had drawbacks for the regulators. Now, a third option may exist. And it appears to get around the headaches involved in the other two. The council, which is chaired by the Treasury secretary, Timothy F. Geithner, and has publicly backed the S.E.C.'s money fund reforms, is scheduled to meet toward the end of September."

Vanguard recently published a piece entitled, "The buck stops here: Vanguard money market funds". It says, "There's been a good deal of discussion about money market funds among policymakers, pundits, and investors during the past several years, and the Securities and Exchange Commission has been considering additional changes to its money market regulations since 2010. However, on August 22, it was reported that the SEC is unlikely to move forward with those proposals at the current time. Regardless of any possible regulatory changes, Vanguard is fully confident in the stability and liquidity of our money market funds. In this commentary, we outline the principles underlying the management of Vanguard money market funds and explain why our confidence in these funds is undiminished.... Low expense ratios, high standards for managing credit, expert credit analysis, conservative fund management, and guarding against disruptive redemption activity are central to Vanguard's approach to money market funds. The SEC's amendments in 2010 to Rule 2a-7 are consistent with how Vanguard has managed its money market funds for many years. Our practices enhanced our ability to manage our taxable and tax-exempt money market funds during the financial crisis. We believe our consistent focus on maintaining these core principles continues to make Vanguard money market funds a high-quality and liquid investment for our clients."

The FDIC released its latest "Quarterly Banking Profile", saying, "Domestic noninterest-bearing deposits increased by 2.9 percent ($65.6 billion), while domestic interest-bearing deposits rose 0.3 percent ($22.5 billion). For the 12 months ending June 30, 2012, total domestic deposits grew by 8.4 percent ($688.1 billion), with domestic noninterest-bearing deposits rising by 20.2 percent ($387.2 billion) and domestic interest-bearing deposits increasing by 4.8 percent ($300.9 billion). At the end of the second quarter, domestic deposits funded 63.5 percent of industry assets. Insured institutions held $1.6 trillion in domestic noninterest-bearing transaction accounts larger than $250,000 at June 30. Of this total, $1.4 trillion exceeded the basic coverage limit of $250,000 per account, but is temporarily fully insured through December 31, 2012. (The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), enacted on July 21, 2010, provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts from December 31, 2010, through December 31, 2012, regardless of the balance in the account and the ownership capacity of the funds. The unlimited coverage is available to all depositors, including consumers, businesses and government entities. The coverage is separate from, and in addition to, the insurance coverage provided for a depositor's other accounts held at an FDIC-insured bank.) Balances exceeding the $250,000 limit in noninterest-bearing transaction accounts increased by 5.0 percent ($65.7 billion) during the second quarter and by 32.1 percent ($335.8 billion) over the past four quarters. Table 1 provides the distribution of large noninterest-bearing transaction accounts by institution asset size."

A statement put out late last week from Economist Arthur Laffer entitled "The Money Market Mutual Fund Industry: First Do No Harm"" says, "Chairman Mary Schapiro of the Securities and Exchange Commission announced Wednesday that she did not have the required votes among the SEC commissioners to proceed with new proposed regulations on money market mutual funds (MMFs). In her statement, she then urged other policymakers to act "to address the systemic risks posed by money market funds." This acknowledgment that any reform must be carried by other regulatory bodies is appropriate. Other regulators have been pushing reform even though Ms. Schapiro’s commission is the only agency that has direct authority over MMFs. The true agency pushing reform has been the Federal Reserve System, even though the Fed has no direct regulatory authority over MMFs. For the Fed has made it a top priority to impose new and, I might add, destructive regulations on MMFs. These proposed new rules represent a self-initiated bailout for the Federal Reserve System itself, designed to protect the Fed from the consequences of its own mistakes over the past four years. Because the Fed owns so many long-term bonds at such low yields, any significant rise in market interest rates would result in a large drop in the value of Fed assets, driving the Fed into insolvency." See Laffer's full report here and his editorial in Investor's Business Daily here.

IOSCO, the European-based International Organization of Securities Commissions, issued a notice late last week entitled, "Statement of the Chairman of the IOSCO Board on IOSCO's work on MMFs." It says, "The Chairman of the Board of IOSCO, Masamichi Kono, has issued the following statement following the press release by SEC Chair Mary Schapiro on August 22 on Money Market Fund Reform. "I have taken careful note of Mary Schapiro's statement on Money Market Fund Reform in the United States. While refraining from directly commenting on a statement of the Chair of a member organization, I would like to reaffirm that IOSCO will continue its work on the basis of the mandate given to it by the G20 Heads of State and the FSB, to develop policy recommendations for strengthening oversight and regulation of the shadow banking system, including Money Market Funds. IOSCO Committee 5 on Investment Management will meet at the end of August to consider the extensive public feedback received to its consultation report "Money Market Fund Systemic Risk Analysis and Reform Options" of 27 April 2012, and to elaborate draft final recommendations for addressing regulatory reforms to mitigate MMF's susceptibility to runs and other systemic risks. The IOSCO Board will determine IOSCO's further course of action on this important subject at its meeting in Madrid on 3/4 October, and will report to the G20 Finance Ministers meeting in November."

A press release put out last Thursday entitled, "Sen. Toomey Heralds SEC Decision Canceling Vote On New Money Market Fund Regulations," says, "U.S. Senator Pat Toomey (R-Pa.) today heralded a Securities and Exchange Commission decision canceling a planned vote on imposing new burdensome regulations on money market mutual funds. The decision is the result of bipartisan opposition to the new rules, including the SEC's two Republican members and Democratic member Luis Aguilar." Toomey comments, "In an effort to minimize the risk of 'breaking the buck,' the SEC had been contemplating a rule which could have devastating consequences for this valuable investment and borrowing vehicle. Some regulators mistakenly believe that it is their responsibility to make it impossible for any money market fund to 'break the buck.' But it should not be the goal of government regulators to attempt to prevent the possibility of failure of the institutions they regulate. Regulation should focus on limiting systemic risk and providing adequate disclosure to investors, while allowing individual investors to make their own choices about where to invest their money and the risk they want to assume. Furthermore, money market funds offer investors and borrowers a stable and highly liquid financial instrument that plays an important role in our economic system. I urge other federal regulators to follow the SEC's bipartisan lead in eschewing these proposed regulations. The SEC has overseen the regulation of money market funds for four decades, and it understands the product best." The release adds, "Sen. Toomey has been at the forefront of the debate over the new regulations, joining with Sens. Michael Bennet (D-Colo.), Mike Crapo (R-Idaho), Mark Kirk (R-Ill.), Bob Menendez (D-N.J.) and Jon Tester (D-Mont.) to send a bipartisan letter to SEC Chairman Mary Schapiro urging caution in moving forward with the proposed regulations. The senator also met with SEC regulators, arguing that the money market fund industry is a stable and important financial instrument that has thrived for decades."

A statement entitled, "ICI Comments on SEC Decision to Halt Official Agency Consideration of Money Market Fund Proposals," says, "In response to Securities and Exchange Commission (SEC) Chairman Mary Schapiro's statement that the agency will not meet to consider money market fund regulatory changes, ICI President and CEO Paul Schott Stevens made the following comment: "The Investment Company Institute and all its members have the utmost respect for Chairman Schapiro and the work that she, her fellow Commissioners, and all the SEC staff do to benefit investors. We have worked collaboratively with the SEC on regulatory issues for many years, and we will continue to do so. Like hundreds of other organizations that have submitted their views, we have strongly opposed the structural changes to money market funds under consideration at the SEC, because of the adverse consequences of these proposals for investors, issuers and the economy. The exhaustive record before the Commission clearly does not support these changes. We are pleased with the recent announcement that the Commission will not be pursuing them further." In another comment, the U.S. Chamber of Commerce says, "We applaud Commissioners Aguilar, Gallagher and Paredes for their decision to preserve this essential cash management tool utilized by organizations and individuals across the country -- ranging from retailers and manufacturers to mayors and state treasurers. The Chamber agrees that it is important to first examine the effectiveness of the current regulatory regime, including the changes implemented in 2010. This approach is not only wise but good government."

The Commission released a "Statement of SEC Chairman Mary L. Schapiro on Money Market Fund Reform" last night after press reports came out saying the agency wouldn't propose new money fund regulations. It says, "Securities and Exchange Commission Chairman Mary Schapiro today made the following statement: Three Commissioners, constituting a majority of the Commission, have informed me that they will not support a staff proposal to reform the structure of money market funds. The proposed structural reforms were intended to reduce their susceptibility to runs, protect retail investors and lessen the need for future taxpayer bailouts. I -- together with many other regulators and commentators from both political parties and various political philosophies -- consider the structural reform of money markets one of the pieces of unfinished business from the financial crisis. While as Commissioners, we each have our own views about the need to bolster money market funds, a proposal would have given the public the chance to weigh in with their views as well. However, because three Commissioners have now stated that they will not support the proposal and that it therefore cannot be published for public comment, there is no longer a need to formally call the matter to a vote at a public Commission meeting. Some Commissioners have instead suggested a concept release. We have been engaging for two and a half years on structural reform of money market funds. A concept release at this point does not advance the discussion. The public needs concrete proposals to react to. The declaration by the three Commissioners that they will not vote to propose reform now provides the needed clarity for other policymakers as they consider ways to address the systemic risks posed by money market funds. I urge them to act with the same determination that the staff of the SEC has displayed over the past two years."

Bloomberg writes "Federated's Donahue Brings Passion to Money-Fund Battle". The article comments, "Christopher Donahue, chief executive officer of Federated Investors Inc. (FII), is sticking up for the family business when he defends money-market funds. Donahue, whose family-controlled firm has three-fourths of its assets in the cash-like products, is the most outspoken opponent of an effort to impose new regulations on the $2.6 trillion industry. Donahue, who refers to the funds as "the eighth wonder of the world," called one of the proposals "totally brain dead" in an interview.... Donahue's lobbying campaign, aided by allies in the mutual-fund business and in Congress, may defeat a lineup of regulators pushing for change in the wake of a 2008 fund collapse that sent clients fleeing from the industry. Securities and Exchange Commission Chairman Mary Schapiro, who along with Treasury Secretary Timothy F. Geithner and former Federal Reserve Chairman Paul Volcker has championed rules to make funds safer, can count on only one backer as her five-member agency prepares to vote on the proposals as early as this month. The fact that Schapiro has yet to bring the matter to a showdown is telling, said John Hawke, a Washington lawyer who represents Federated."

Reuters writes "Mayors oppose new money market fund restrictions". The article says, "A group including nine big-city mayors organized by the U.S. Chamber of Commerce came out on Monday against additional rules for money market mutual funds, ahead of a key regulatory vote like later this month. The U.S. Securities and Exchange Commission is expected to vote on Aug. 29 on a proposal aimed at bolstering the $2.4 trillion money fund industry, which suffered from a run of customer withdrawals at the height of the 2008 financial crisis. If approved, the proposal would be issued for public comment. But the mayors, following previous objections raised by some corporations and other short-term borrowers, argued in a letter to the SEC that the changes would disrupt the market, driving up borrowing costs and pushing investors away from a popular savings vehicle. The fund industry is also vehemently opposed to the proposal."

The Federal Reserve Bank of New York published an updated "RRP Eligibility Criteria for Banks and Savings Associations III, Government-Sponsored Enterprises II and Money Funds IV" last week, which says, "This document sets forth the criteria for acceptance as a counterparty eligible to participate in reverse repurchase transactions (RRP) with the Federal Reserve Bank of New York (FRBNY). FRBNY may engage in RRP, if at all, at the direction of the Federal Open Market Committee (FOMC). In any such RRP, FRBNY will sell securities held in the System Open Market Account (SOMA) to counterparties subject to an agreement to repurchase them at some future date. FRBNY will use the existing industry tri-party infrastructure to undertake any such RRP. In addition, as with current operations, FRBNY intends to use an auction format for awarding transactions to counterparties. Upon submission of an application and acceptance of that application by FRBNY, an applicant will be added to a public list, maintained on FRBNY's website, of RRP counterparties. Inclusion on such list simply means that the entity is eligible to engage in RRPs with FRBNY. It does not mean that the entity is eligible for any other program or transactional relationship with FBRNY. It does not in any way constitute a public endorsement of that entity by FRBNY, nor should such inclusion be viewed as a replacement for prudent counterparty risk management and due diligence. FRBNY reserves the right to amend its list of RRP counterparties at any time and for any reason at its sole discretion. FRBNY reserves the right to disclose information regarding the RRP counterparties. Details of transactions undertaken with RRP counterparties will be disclosed in accordance with the requirements of Section 1103 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That legislation requires the disclosure of certain information regarding open market transactions between a Federal Reserve Bank and nongovernmental entity that have been authorized under specified provisions of Section 14 of the Federal Reserve Act, which would include RRPs."

Today's Wall Street Journal writes "'Broken' Fund Shifts the Blame", which says, "Nearly four years after the collapse of Lehman Brothers Holdings Inc. "broke the buck" at his money-market mutual fund, Bruce R. Bent is blaming the U.S. government. The 75-year-old Mr. Bent and his son, Bruce Bent II, are set to go on trial in October on civil charges of misleading investors, ratings firms and trustees of the Reserve Primary fund as it wobbled in September 2008. The Securities and Exchange Commission alleges that the two men falsely claimed they would prop up the fund's $1 net asset value even though they "secretly harbored" doubts. The two Bents have denied the allegations in the SEC's civil lawsuit ever since it was filed in U.S. District Court for the Southern District of New York in 2009.... As both sides prepared for trial, lawyers for the Bents sprang a surprise. They told the judge that jurors should be allowed to hear about the government's refusal to bail out Lehman, criticism of the SEC's record in other crisis-related cases and potentially awkward emails." In other news, ICI's latest "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets increased by $11.76 billion to $2.574 trillion for the week ended Wednesday, August 15, the Investment Company Institute reported today." Over the past 3 weeks, money fund assets have increased by $19 billion. Year-to-date, money fund assets are down by $121 billion, or 4.5%.

The Investment Company Institute's Mike McNamee posted his fourth "Viewpoint" in as many days. The latest is entitled, "Correcting the Record: Investor Protections in the SEC's 2010 Money Market Fund Reforms," which says, "We've said it before, and we'll say it again: One of the most puzzling aspects of regulators' campaign for changes to money market funds is their ability to ignore the dramatic improvements in these funds resulting from the regulatory reforms that the Securities and Exchange Commission (SEC) enacted in 2010. Six months before Congress passed the Dodd Frank Act, the SEC became the first agency to address any of the financial products hit by the crisis, passing a package of sweeping changes to tighten regulation and make money market funds more resilient. For more than a year, those reforms have been tested by the ongoing European debt crisis, the standoff over the U.S. debt ceiling, and the historic downgrade of the U.S. credit rating -- and money market funds have emerged strong. To her credit, SEC Chairman Mary Schapiro acknowledges that "the 2010 reforms were extremely positive." But at the same time, her public statements -- including her latest testimony before the Senate Banking Committee -- frequently downplay and undercut those very reforms. Take today's example: Misstatement: "I don't think [the 2010 SEC amendments] address the unfair results that can occur when a sophisticated institutional investor gets out quickly and losses are concentrated with retail investors, or retail investors are left in a frozen fund and can't access their liquidity." Actually, the SEC's 2010 amendments address exactly this situation. First, the healthy liquidity that the amendments require money market funds to hold sharply reduces the odds that a fund will become "frozen." As we've noted, liquid assets held by prime money market funds today are twice as great as the outflow from such funds in the week that Lehman Brothers failed in September 2008. Second, these reforms, for the first time, give money market fund boards of directors the power to assure a fair and orderly liquidation of a troubled money market fund, should that be necessary."

Bloomberg writes "Fed's Dudley Backs Money Fund Rules to Guard U.S. Economy". (See the Dudley Comment here.) It says, "William C. Dudley, president of the Federal Reserve Bank of New York, said new rules are needed to protect the financial system from a run on money-market mutual funds, lending his support to a regulatory overhaul proposed by U.S. Securities and Exchange Commission Chairman Mary Schapiro." Dudley says in a Bloomberg View column, "A glaring vulnerability exists with money-market mutual funds. Money funds should have capital buffers and modest limits on investor withdrawals. Such reforms are necessary to protect the economy from financial instability in the future." The piece adds, "Capital cushions and redemption restrictions are part of Schapiro's plan to bolster money-fund regulation. She has so far failed to win enough backing among her four fellow commissioners, who may vote as early as this month on whether to ask for public comment or kill the proposal."

The Investment Company Institute's Mike McNamee has posted a part II of his "Viewpoints" piece (see yesterday's "News"), entitled, "Correcting the Record: Uncovering Regulators' False Narrative of 2008." It says, "The regulators who are campaigning for structural changes in money market funds are building their case in part on distortions, exaggerations, and misunderstandings about money market funds, their investors, and their role in the financial markets. Given what's at stake -- the grave damage that funds, their investors, and the economy would suffer if concepts promoted by some at the Securities and Exchange Commission (SEC) go forward -- it's crucial that the record be clear and accurate. Today, we're looking at a set of myths that have embedded themselves firmly in regulators' statements -- the false narrative of the 2008 financial crisis. The farther we get from those events, the more determined regulators are to claim that money market funds were at the center of the crisis -- a tale that, at best, is incomplete and misleading."

The New York Times writes "Breaking a Buck, Maybe, but Not Taxpayers' Backs". The Gretchen Morgenson column says, "Mark Aug. 29 on your calendar. It's the day all of us could end up on the hook for a big future bailout. The Securities and Exchange Commission is expected to vote that day on a proposal that would limit taxpayers' exposure to the $2.6 trillion world of money market mutual funds. The plan would reduce the odds of having to rescue teetering funds when the next financial crisis comes -- and it will. Money market funds are a huge cog in the nation's financial machinery. Many people think that these funds are as safe as federally insured bank deposits. In most cases, they aren't. But then, in the dark days of 2008, a run on one fund, Reserve Primary, reverberated in the industry. Investors fled, and the Treasury stepped in. It earmarked $50 billion to protect money market funds and to prevent them from "breaking the buck," or having their shares fall below the sacrosanct $1 net asset value. Of course, if the government rides to the rescue once, the thinking goes, it will surely do so again. But the S.E.C. has a plan to make money market funds safer, at least for taxpayers. It has proposed that funds set aside enough capital to withstand future runs. It has also suggested that funds' share prices reflect investment reality. Right now, prices are reported daily as $1, regardless of gyrations in funds' investments."

Bloomberg writes "SEC List Shows 155 Money Funds That Got Approval for Help". It says, "Money-market fund companies obtained permission to support 155 of their funds during the financial turmoil of 2007 and 2008, and six more funds got the same go-ahead since the crisis, according to a list provided to Congress by the U.S. Securities and Exchange Commission. Bank of New York Mellon Corp., Morgan Stanley and Charles Schwab Corp. are among companies that lined up the ability to bail out funds to guard against credit defaults or market illiquidity, according to the SEC's list, a copy of which was obtained by Bloomberg News. Northern Trust Corp., American International Group Inc. and Pioneer Investments bought troubled securities out of their funds in 2010 and 2011 after the SEC passed new rules to make funds more stable." Bloomberg adds, "The report stems from testimony Chairman Mary Schapiro gave to the Senate Banking Committee on June 22 aimed at bolstering regulators' arguments that money funds remain a threat to global financial market stability despite the 2010 rule changes. Fund companies had sought permission from the agency to provide support for funds more than 300 times since the 1970s, she told lawmakers." In other news, ICI released its "Money Market Mutual Funds" report, saying, "Total money market mutual fund assets increased by $10.94 billion to $2.562 trillion for the week ended Wednesday, August 8, the Investment Company Institute reported today."

As we wrote yesterday (after our MFI Daily was sent), The Wall Street Journal published an article entitled, "SEC-Money Fund Showdown: Aug. 29." It says, "After months of wrangling in Washington, U.S. regulators are planning to vote later this month on a proposal to tighten rules governing the $2.6 trillion money-market mutual-fund industry. Securities and Exchange Commission Chairman Mary Schapiro has waged a public campaign this year to rein in money funds. Her goal: to avoid a repeat of 2008, when a run on one fund threatened to destabilize the financial system. But the proposal has faced stiff opposition from the mutual-fund industry, which argues that the rules effectively would kill their businesses."

In its latest monthly commentary, Wells Fargo Advantage Money Market Funds comments on LIBOR. The piece, by Dave Sylvester, says, "After one large British bank admitted falsifying the interest rates it submitted for the daily calculation of the London Interbank Offered Rate (LIBOR) and investigations into the submissions by a number of other LIBOR-panel banks have been announced, there are renewed concerns regarding the integrity of the rate and its appropriateness as a benchmark interest rate.... In our view, all survey-based measures are flawed to some degree, and in the case of LIBOR we see a problem that stems directly from the question being asked -- the question is basically unanswerable.... So even without the question of outright manipulation, it should come as no surprise that a rate based on an unanswerable question, about theoretical rates in an illiquid market, set before the market opens, and which has the potential to call the creditworthiness of the submitting bank into question, might have some credibility issues."

The Federal Reserve Bank of New York issued a "Statement Regarding Repurchase Agreements" last week, which said, "In November 2009, the Federal Open Market Committee (FOMC) authorized the New York Fed to undertake reverse repurchase transactions (reverse repos) for the purpose of testing operational readiness. The New York Fed has undertaken several such transactions, each one announced on the Markets section of the Bank's website. At its meeting in June 2012, the FOMC amended the Authorization for Domestic Open Market Operations to authorize the New York Fed to undertake certain open market transactions -- outright purchase and sale of securities, and repos, in addition to reverse repos -- for the purpose of testing operational readiness. As such, beginning Friday, August 3, the New York Fed intends to conduct a series of small-value repos using all eligible collateral types. The repos will be conducted only with the primary dealers. The New York Fed has not conducted a repo since December 30, 2008. Since that time, there have been several system changes, changes to support triparty reform and six primary dealers have been added. Like the earlier reverse repo operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding repo transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."

On Thursday, Matthew J. Eichner, Deputy Director, Division of Research and Statistics at the Federal Reserve testified on the "Tri-party Repo Market Before the Subcommittee on Securities, Insurance, and Investment, Committee on Banking, Housing, and Urban Affairs, U.S. Senate." He said, "Chairman Reed, Ranking Member Crapo, and members of the subcommittee, thank you for inviting me to appear before you today to discuss the triparty repurchase agreement (repo) market. The Federal Reserve has a strong interest in the smooth functioning and resiliency of this market for several reasons. First, the market serves as a tool for cash and liquidity management as well as for short-term borrowing for a wide range of financial intermediaries, including money market funds, insurance companies, banks, and securities dealers, all of which play an important role in supporting the savings and investment programs of households, small businesses, and nonfinancial corporations. Second, a number of entities subject to direct prudential supervision by the Federal Reserve are significant participants, including the holding companies of the two clearing banks, JPMorgan Chase and BNY Mellon, as well as many other bank holding companies. Finally, triparty funding materially supports the depth and liquidity of a number of critical markets, including those for U.S. government securities in which U.S. monetary policy is executed. In light of the importance of the triparty repo market, the Federal Reserve has been and is committed to working with market participants and other supervisory and regulatory organizations to enhance the market's resiliency. During the crisis, it became apparent that the design of the market's infrastructure to settle transactions, in particular, had fundamental flaws that could lead to serious instability during periods of market stress. Some significant progress has been made subsequently by market participants to address these shortcomings. The triparty repo market is now smaller than its peak and in general funds higher-quality collateral than it did prior to the crisis. However, not as much progress has been made--or made as quickly--as we believe is warranted given the seriousness of the situation, and certain clear vulnerabilities remain. The Federal Reserve continues to be fully engaged on a number of fronts to promote measures that will further mitigate these risks." See also, Dow Jones' "Fed Official: FSOC Could Act on Triparty Repos".

Stradley Ronon's Joan Ohlbaum Swirsky wrote recently on, "Money Market Fund Reform: New York Fed Provides First Official Details of Possible Reform Options." She said, "A staff report (the Report) released by the Federal Reserve Bank of New York (FRBNY) provides the first official written outline of two possible reform options for money market funds. The options would require money market funds to either: adopt a floating net asset value (NAV); or both: (a) maintain a capital buffer, and (b) impose on shareholders a minimum account balance that would be used to offset losses that arise and cause the fund to break the dollar. The Report focuses on the benefits of the second aspect of the latter of these reform options: a requirement that each shareholder maintain a minimum account balance (a minimum balance at risk or MBR) between 2 percent and 5 percent of his/her account that would be retained in the fund if the shareholder sought to redeem more than 98 percent (or 95 percent) of his/her account." See also, ICI's weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $3.95 billion to $2.551 trillion for the week ended Wednesday, August 1, the Investment Company Institute reported today. Taxable government funds increased by $1.89 billion, taxable non-government funds decreased by $5.85 billion, and tax-exempt funds were unchanged."

The latest Statement from the Federal Reserve Open Market Committee says, "Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated.... To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.... Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate."

DB Advisors will host a webcast entitled, "Finding stability in a time of volatility" on Thursday, August 2 at 2pm featuring Joe Benevento, Head of Portfolio Management, Liquidity Management, Americas, and Nagesh Gopal, Product specialist, Institutional Liquidity Management. The description says, "Investors have had little respite from the volatility that has plagued the global economy. Headline events from Europe dominated the first half of 2012, while debates surrounding the impending US fiscal cliff and effects of regulatory reform on the financial system are likely to dominate the second half. Join us to learn more about these important topics and how investors can design portfolios to contain the volatility arising from challenging global financial conditions." Federated Investors will also host a Money Market Update Conference Call on Thursday, August 2, at 4pm. The dial-in number is: (877) 539-1936 and the conference ID # is 95957183.