Daily Links Archives: June, 2014

Financial Advisor Magazine writes on "SEC's Aguilar", speaking at the Hispanic Heritage Foundation Latino pension fund trustee forum in Washington, D.C., "The commissioner said the SEC has been making progress developing new money market mutual fund rules and he expects a public proposal soon. A year ago this month, the SEC presented two options for comment that it said could have been used in tandem or separately. One proposal is to allow the net asset value of money market shares to float, rather than be fixed at $1, in funds primarily used by institutional investors. The other proposal would allow funds to impose fees and other limits to prevent runs by retail and institutional investors. SEC Chair Mary Jo White said the aim of the rules would be to prevent runs like the one on the Reserve Primary Fund, which lowered the price of its shares below $1 in September 2008 because of its exposure to Lehman Brothers debt. The fund's move to "break the buck" helped fuel the financial crisis." (Note: Aguilar doesn't mention money funds in his prepared remarks, so we assume the magazine is quoting from a Q&A or private discussion afterwards.)

Total money market fund assets increased by $5.08 billion to $2.56 trillion for the week ended Wednesday, June 25, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $7.04 billion and prime funds decreased by $20 million. Tax-exempt money market funds decreased by $1.94 billion. Assets of retail money market funds decreased by $5.30 billion to $892.55 billion. Among retail funds, Treasury money market fund assets decreased by $1.76 billion to $197.18 billion, prime money market fund assets decreased by $2.25 billion to $510.46 billion, and tax-exempt fund assets decreased by $1.30 billion to $184.91 billion. Assets of institutional money market funds increased by $10.38 billion to $1.66 trillion. Among institutional funds, Treasury money market fund assets increased by $8.80 billion to $707.95 billion, prime money market fund assets increased by $2.23 billion to $885.27 billion, and tax-exempt fund assets decreased by $640 million to $70.51 billion." Year-to-date, money fund assets have declined by $162 billion, or 6.0%. Institutional assets have declined YTD by $126 billion, or 7.0%, while Retail assets have declined by $37 billion, or 3.9%. Assets should decline sharply next week with quarter-end. In other news, see the South China Morning Post's "Launch of new products to grow mainland China online finance market". It says, "E-commerce giant Alibaba, which is preparing for its initial public offering in New York, was the first to launch an innovative online wealth management product for mainland consumers last June. The highly successful Yu E Bao money market fund had raised about 554 billion yuan (HK$696 billion) and signed up about 81 million investors by the end of April. With Yu E Bao, Alibaba lowered the minimum fund investment to one yuan from the previous average of about 1,000 yuan. This allowed the participation of younger and more middle-class investors, which the other online money market funds that followed have also targeted."

Bank of England Governor Mark Carney wrote recently in the Financial Times, "The need to focus a light on shadow banking is nigh". His comments were mentioned during this week's Money Fund Symposium and careful observers noted that a European "buffer" was not included in his remarks. He said, "As progress has been made in reforming the global banking ‚ÄČsystem and as risk appetite returns to financial markets, wider attention has begun to focus on shadow banking.... In the run-up to the crisis, opacity in shadow banking fed an increase in leverage and a reliance on short-term wholesale funding.... [R]eforms are in train to make the institutions and markets at the heart of the shadow banking system more resilient. Money market funds are being made less susceptible to runs through minimum liquid asset requirements and by establishing an ability for funds to use, for example, temporary suspensions of withdrawals and redemptions in kind. The misalignment of incentives created by unsound securitisation structures is being corrected. And minimum margin requirements are being developed to reduce the cycle of excessive borrowing in economic booms that cannot be sustained when liquidity dissipates in core fixed-income markets."

The latest entry to the SEC's "Comments on Proposed Rule: Money Market Fund Reform" website is a paper from Mark Hannam on behalf of the Institutional Money Market Fund Association (IMMFA), entitled, "Money Market Funds, Bank Runs and the First-Mover Advantage." Its Abstract says, "Several recent reports from regulatory bodies have recommended that money market funds should be required to move from stable to variable net asset valuation pricing, to reduce the risk of first-mover advantage and the risk of a run on the fund. Most money market fund sponsors doubt that this proposal will reduce either run risk or first-mover advantage. Thirty years of academic research on bank runs has concluded that the best protections against bank runs are retail deposit insurance or the suspension of convertibility. There are no arguments within the academic literature in favour of changing the terms of the demand deposit contract, from stable to variable value: it is quite remarkable that the preferred solution for MMFs is one without precedent in banking regulation. Money market funds are different from banks in four fundamental respects. These differences concern their legal form but also, importantly, their economic function. Money market funds do not engage in fractional reserve banking and they do not perform liquidity creation. Money market funds, like other capital markets products, are vulnerable to the unanticipated actions of investors during periods of market distress. At such moments there is a risk that money market funds might contribute to the amplification of systemic risk."

In the article, "How Regulators Can Stop Shadow-Boxing with Shadow Banks," American Banker looks at the latest developments from the Financial Stability Oversight Council (FSOC). "The financial industry and its regulators are stuck in an outdated debate as they continue to spar over which firms are so big that they should be overseen by one or more regulators. The latest round took place when the Financial Stability Oversight Council hosted a public conference in late May. Panelists discussed the question of whether certain asset management firms should be designated under the Dodd-Frank Act as systemically important financial institutions -- so-called SIFIs -- and thus be regulated by the Federal Reserve," writes author William Shirley, counsel at Sidley Austin. "This is the wrong question to ask. In the era of shadow banking, regulators should focus not on which asset management firms to regulate, but on which asset management activities. Put another way: Regulators make a mistake when they target shadow banks. They should focus on shadow banking." He continues: "For example, we end up with a perfect storm of misunderstanding when we debate whether the FSOC should designate asset management firms as SIFIs, which inevitably leads to a debate about how we would then apply regulatory capital requirements. Capital requirements make little sense when applied either to the biggest mutual funds, which borrow little or no money to start with, or to asset managers with the greatest amount of assets under management, which are not liable for the obligations of the funds they manage." Shirley adds: "The fact is that today we effectively create deposits through money market mutual funds; money market mutual funds lend large amounts of money to securities firms to finance securities portfolios; and securities in those portfolios are issued by securitization vehicles that hold loans and mortgages that banks once held. Given this extraordinary economic ecosystem, it is a mistake of habit to approach regulatory challenges in an entity-centric fashion. This may have worked when the economy's ebb and flow was bounded by the shores of the banking world, and regulating banks was equivalent to regulating the economy as a whole. But this is no longer the case, as the entities engaged in shadow banking are too diverse. Identifying these firms by their size alone does not ensure that we capture systemically important economic activities. Forbes also dove into the debate in a June 19 article, "What Happens if Investment Funds are Labeled Too Big To Fail?."

Fitch Ratings reported that Credit Suisse saw only moderate declines in money market fund holdings in May following its guilty plea to helping US clients evade tax. Writes Fitch, "Money fund flows are driven by various factors, including pricing, and can react to headline risk either by reducing exposures or by shortening maturities. Banks do not rely on these short-term funds and in most instances place deposits from the money funds with the Federal Reserve. U.S. prime money fund allocations to Credit Suisse fell 8% in May compared to relatively stable total prime fund assets, according to data from Crane. The monthly decline is higher than the average monthly variance of 4.8% for Credit Suisse's money fund exposures over the previous six months. But the exposures are still slightly above the end-2013 level, so the overall fall is not material. The bank was still one of the top 15 held names, comprising $39bn, or 2.6% of money fund assets." The release continues: "There were stark contrasts at the fund manager level with some counterparties reducing allocations and others raising exposures to Credit Suisse. The largest decrease for a fund manager was approximately USD1bn, or 23% of the fund manager's exposure to the bank. Further downward or upward adjustments are possible as the settlement is digested, but the impact on overall money fund allocations is likely to be limited. As we have said previously, we do not believe the fine and guilty plea from Credit Suisse's settlement on May 19 will cause significant damage to its franchise." Also, adds Fitch, "Money fund exposures to BNP Paribas, which is involved in an ongoing investigation on US sanctions breaches, increased slightly in May to 2.7% of assets, up 0.1pp from end-April. Allocations to the bank were USD1bn or 2.8% higher than April, even though total money fund assets were broadly flat. There was, however, a wide range of allocation changes among the fund manager mix, like at Credit Suisse. Bank of America, which is in discussions with the US Department of Justice on various mortgage related issues, also saw an increase in money fund allocations. Money fund exposures to BAC increased by USD1.9bn or 6.7% during May, reaching 2.0% of total money fund assets."

ICI's latest "Money Market Fund Assets" release says, "Total money market fund assets1 decreased by $31.27 billion to $2.55 trillion for the week ended Wednesday, June 18, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $13.34 billion and prime funds decreased by $17.58 billion. Tax-exempt money market funds decreased by $340 million. Assets of retail money market funds decreased by $1.31 billion to $897.89 billion. Among retail funds, Treasury money market fund assets decreased by $570 million to $198.94 billion, prime money market fund assets decreased by $460 million to $512.74 billion, and tax-exempt fund assets decreased by $280 million to $186.21 billion. Assets of institutional money market funds decreased by $29.95 billion to $1.65 trillion. Among institutional funds, Treasury money market fund assets decreased by $12.78 billion to $699.16 billion, prime money market fund assets decreased by $17.12 billion to $883.05 billion, and tax-exempt fund assets decreased by $60 million to $71.15 billion." Monday (June 16) was a quarterly corporate tax payment date, so outflows are to be expected; we should see additional outflows at quarter-end as well. In other news, see the update, "FASB Improves Financial Reporting of Repurchase Agreements." Dated June 12, the release says, "The Financial Accounting Standards Board (FASB) today issued a new standard to improve the financial reporting of repurchase agreements and other similar transactions. Accounting Standards Update No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires enhanced disclosures about repurchase agreements and other similar transactions."

The SEC's Investor.gov website released an "Investor Bulletin" to educate investors on bank sweep programs. They write, "Broker-dealers may offer you several options for managing your cash. One option, a bank sweep program, typically involves the automatic transfer (or "sweep") of cash in the brokerage account into a deposit account at a bank that may or may not be affiliated with the broker-dealer. Other options include leaving cash in the brokerage account, or sweeping cash to one or more money market mutual funds. This investor alert focuses only on the first option: bank sweep programs. The terms and conditions of bank sweep programs vary. The protections for cash at a bank primarily will derive from banking laws and regulations, including FDIC deposit insurance." It continues, "You should review your brokerage account agreement and statement to determine if you are participating in a bank sweep program for your cash. Many bank sweep programs are the "default" option for managing cash in a brokerage account, so you may have agreed to participate in your broker-dealer's bank sweep program when you opened your brokerage account. `Beginning in March 2014, your broker-dealer must obtain your written consent to participate in a bank sweep program for any new account you open. If the description of the bank sweep program is not clear to you, you may want to consider asking your broker-dealer to explain how its bank sweep program works. You also may want to consider asking your broker-dealer about other options for your cash as well as the return offered, risks and costs of each option."

The Investment Company Institute released its latest "Money Market Funding Holdings" report, which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds (as of May 31, 2014). ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 22.8% as of May 31, down slightly from 22.9% on April 30. "Daily liquid assets" were made up of: "All securities maturing within 1 day," which totaled 18.7% (vs. 17.8% last month) and "Other treasury securities," which added 4.2% (vs. 5.1% last month). Prime funds' Weekly liquid assets totaled 36.8% (vs. 36.5% last month), which was made up of "All securities maturing within 5 days" (31.5% vs. 30.1% in Feb.), Other treasury securities (7.0% vs. 6.8% in Feb.), and Other agency securities (1.3% vs. 1.3% a month ago). Government Money Market Funds' Daily liquid assets total 62.3% in May vs. 63.6% in April. All securities maturing within 1 day totaled 27.3% vs. 27.6% last month. Other treasury securities added 35.0% (vs. 36.0% in April). Weekly liquid assets totaled 83.6% (vs. 84.6%), which was comprised of All securities maturing within 5 days (37.9% vs. 35.7%), Other treasury securities (32.9% vs. 36.0%), and Other agency securities (12.8% vs. 12.9%). ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 40.6% in the Americas (vs. 40.9% last month), 19.1% in Asia Pacific (vs. 18.8%), 40.0% in Europe (vs. 40.0%), and 0.3% in Other and Supranational (vs. 0.3%). Government Money Market Funds held 84.6% in the Americas (vs. 87.9% last month), 0.6% in Asia Pacific (vs. 0.5%), 14.8% in Europe (vs. 11.5%), and 0.0% in Supranational (vs. 0.1%). The table, "Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs remained the same and WALs shortened by one day from last month (at 45 and 80 days, respectively) and Government MMFs' WAMs shortened by one day to 43 days and their WALs remained the same at 71 days. ICI's release explains, "Each month, ICI reports numbers based on the Securities and Exchange Commission's Form N-MFP data, which many fund sponsors provide directly to the Institute. ICI's data report for May covers funds holding 94 percent of taxable money market fund assets." Note: ICI doesn't publish individual fund holdings.

Morningstar's article, "Favorite Investments for Short-Term Retirement Assets" asks readers to share their strategies for holding cash in their retirement portfolios. Writes author Christine Benz, "A healthy contingent of posters said that risk control is the name of the game for their liquid reserves. Thus, they're sticking with actual cash instruments such as CDs and money market accounts. Chip1909 made the case for keeping bucket 1 safe, arguing that "placing Bucket 1 anywhere but in the maximum-security arms of a money fund would be foolhardy." DONQ agreed, writing that, "Short-term rates are so low that even the minimal risk is not worth the returns." The knock against cash is that yields are so low right now. But peace of mind is the main attraction for investors like revell10306: "I have no current concerns about these funds generating return; they exist to allow my real investments room to run or buffer in the event of a downturn." Most of the readers who said they were sticking with cash had taken steps to pick up a bit of extra yield. Online savings accounts received repeat mentions, as did CDs, including those offered by online-only banks."

On Friday, The Financial Times reported on a trend of large U.S. companies parking billions of dollars in cash overseas. The article, "U.S. Tech and Pharma Park Cash Offshore," says, "Nearly $500bn of offshore cash is held by just 14 US technology and pharma groups, according to an FT survey that found they paid an average overseas tax rate of just 10 percent last year. That's "just over half of the $947bn that Moody's estimated was held by US non-financial companies." The FT article continues, "This year, there has been an acceleration of foreign acquisitions by US companies wanting to move their tax base abroad as they try to break free of the US tax system and lock in lower foreign tax rates. Some companies are borrowing heavily in the US to avoid the tax costs of repatriating offshore funds. Moody's, the credit rating agency, has described the growth in offshore cash as "an emerging credit challenge" for some technology companies.... The FT reviewed the accounts of 14 cash-rich tech and pharma companies that provided data on their offshore cash. Apple, Microsoft, Google, Pfizer, Cisco Systems, Oracle, Qualcomm, Johnson & Johnson, Merck, Amgen EMC, eBay, Eli Lilly and Medtronic together held $479bn of offshore cash and equivalents at the end of their last financial year -- just over half of the $947bn that Moody's estimated was held by US non-financial companies." Note: EMC's Jamie Cortas will speak on Corporate Cash at our upcoming Money Fund Symposium next week (June 23-25) in Boston. See also, Bloomberg's "Support eroding for money funds rule as SEC's White pushes vote".

According to a recent SEC filing, Fidelity Investments will liquidate its Fidelity Ultra Short Bond Fund (FUSFX), including all other share classes (FUBAX, FTUSX, FUBIX), this week. It says, "The Board of Trustees has approved a plan of liquidation for the fund effective after the close of business on or about June 13, 2014. In connection with the liquidation, the fund will be closed to new investors on April 25, 2014, and the fund will remove its 0.25% redemption fee on shares held less than 60 days, effective on March 14, 2014." The filing continues, "Effective after the close of business on April 25, 2014, new positions in the fund may no longer be opened. Existing shareholders may continue to hold their shares (including any shares acquired pursuant to the reinvestment of dividend and capital gain distributions)." The fund had $81.5 million in assets and a yield of 0.27% as of May 31. Fidelity has another fund it categorizes as an Ultra Short bond fund, the Fidelity Conservative Income Fund (FCONX) with $1.5 billion in assets as of May 31. The Fidelity Conservative Income Bond Fund Institutional Class (FCNVX) has $2.3 billion in assets. In other news, ICI released its latest "Money Market Mutual Fund Assets" report, which says, "Total money market fund assets1 increased by $2.56 billion to $2.58 trillion for the week ended Wednesday, June 11."

Deposit Accounts ranked the top CD rates in its "Survey of the Best CD Rates" for the week ended June 8, 2014. EverBank (1.40% intro 6-month rate) had the best Under 1-Year CD Rate, followed by Connexus Credit Union (1% 6-month CD), Doral Direct (0.91% 9-month CD), Doral Direct (0.87% 6-month CD), and Ally Bank (0.87% 11-month rate). Top 1-year CD rates are Melrose Credit Union (1.15%), Synchrony Bank (1.15%), Synchrony (1.10% 25K minimum), GE Capital Bank (1.10%), EverBank (1.10%), and Connexus Credit Union (1.10%). For more rates and rankings, go to Depositaccounts.com. The author notes that GE Capital Retail Bank has changed its name to Synchrony Bank. The name change took effect on June 2. (See the story here.) Also, Creditnet.com ranked "The Best Money Market Accounts of 2014." Says the press release, "To create their ranking of the best money market accounts, Creditnet experts weighed many factors including APYs, intro rates, minimum deposits, fees, customer reviews, and expert opinions." According to their findings, the three best money market accounts for consumers today are GE Capital Bank (0.90% APY), Ally Bank (0.87% APY), and EverBank (0.86 APY). In the latest issue of Money Fund Intelligence, our Crane Bank Index lists GE Capital Bank as the top bank savings rate at the end of May with a rate of 0.95%. All Bank is next at 0.97% followed by American Express at 0.80%.

A Wall Street Journal article, entitled, "Firms Find Short is Beautiful," reports on the increase in non-financial commercial paper issuance recently. The piece says, "Apple Inc. and at least a dozen other companies have started borrowing short-term cash at the fastest pace in almost two years, telegraphing economic growth. Last month, companies with the highest credit ratings sold an average of $5.88 billion of commercial paper a day, according to the Federal Reserve. For the first time in about two decades, corporate commercial paper accounts for a quarter of the market, with banks and insurers making up the rest." "Companies are issuing more commercial paper to finance expenses such as growing payrolls, capital spending and mergers and acquisitions," John Lonski of Moody's tells the Journal. "Companies are more optimistic, more confident," he says. "There is a correlation between what happens with private-sector payrolls and commercial paper." The article continues, "This year alone, the amount of commercial paper outstanding issued by nonfinancial companies has jumped $82.5 billion to $278.6 billion, according to Fed data, before adjustment for seasonal factors." It continues, "Fed Chairwoman Janet Yellen has been publicly frank that the central bank will keep short-term interest rates low even as the economy recovers. That's persuaded short-term borrowers they can continue to roll over their debts." "That has encouraged a fair amount of issuance in the CP market. They feel that much more comfortable operating their programs at capacity," Barclays' Christopher Conetta tells the Journal. The piece adds, "Apple, for example, recently began issuing up to $10 billion in paper for the first time in 17 years. The tech giant has paid 0.05% for three-week paper and 0.15% for debt maturing in about six months, according to Peter Crane, president of Crane Data LLC, a money-fund research firm." It explains, "There's strong demand for debt from companies like Apple as yield-starved, short-term investors hunt for higher rates. Three-month commercial paper yields range from about 0.10% for the highest-ranked borrowers to a little over 0.25% for so-called Tier 2 companies, according to the Fed. By contrast, three-month bank certificates of deposit are returning an average 0.09%, according to Bankrate.com." The WSJ quotes Crane, "Demand is insatiable for nonfinancial, plain-vanilla blue chips."

Wells Fargo Advantage Funds' latest "Overview Strategy, and Outlook" contains an "Update on Japanese Banks, which explains, "Last month, we traveled to Tokyo to meet with several issuers, including Sumitomo Mitsui Banking Corp., Sumitomo Mitsui Trust Bank, Mitsubishi UFJ Trust and Banking Corp., and Mizuho Financial Group. We also had the opportunity to meet with Fitch Japan, Standard & Poor's Japan, and Moody's Japan to discuss the Japanese banking sector. With over $230 billion of commercial paper (CP), Yankee certificates of deposit (CDs), and asset-backed commercial paper, representing more than 10% of all prime money market instruments outstanding, the Japanese banking sector has become increasingly important to us as an investment alternative. While Japan's recent economic history is frequently characterized as The Lost Decade, the consensus is that Abenomics and the Bank of Japan's (BOJ's) monetary easing have boosted expectations for higher growth and an end to deflation and have improved the operating environment for banks." The commentary continues, "However, banks and the rating agencies noted that there are risks if the government's policies -- specifically the third arrow related to structural reforms -- do not increase Japan's growth rate or if Japanese government bond yields rise significantly. A loss of confidence in either Abenomics or the BOJ's commitment to monetary easing would likely lead to a sharp decline in the Japanese equity market, presenting a significant challenge to profitability in the banking sector." It concludes, "We take comfort from the Japanese megabanks' strong liquidity, current excellent asset quality, improved capital levels, record net profits, strong systemic support assumptions, and improved operating environment. Despite some specific credit concerns, the trip helped confirm our conviction that investing in the Japanese banking sector is consistent with minimal credit risk."

The Wall Street Journal writes "Here's One Set of Potential Losers from the ECB's Rate Move". The Journal can't help itself anymore from spinning negative on anything money fund related, writing, "European money market funds, which have been pushing into riskier strategies to stem outflows, may be among the big losers now that the European Central Bank has cut interest rates to negative territory. Money market funds occupy an unglamorous but crucial part of the financial markets. They provide companies, banks and governments with short-term financing at low rates. For investors, they are typically seen as a low risk way to diversify surplus cash holdings. But they have been buffeted by persistently low interest rates that have seen investors put their money in higher yielding stocks and bonds, or alternative cash-management accounts. What do negative rates mean for the industry? Now, the widely expected ECB moves may contribute to a further decline in rates on the short-term debt that money funds buy.... Continued low yields could constrain the ability of European money market funds to generate income for their investors at a time when they are already struggling to justify their existence." The Journal quotes our Peter Crane, "You're seeing a continued, slow shrinkage of the sector. Historically, money funds took share from banks because of a yield advantage, but as yields compress that advantage is nullified." The piece explains, "Euro-denominated assets in money market funds alone now sit around E80 billion ($108.8 billion), down from E111 billion as of the end of May 2012, according to Crane Data LLC <b:>`_. If yields on short-term debt in the euro-zone turn negative for a protracted period, some funds could be forced to close to new investment."

Concerning the ECB deposit cut into negative territory's impact on money market funds, a Reuters article, "Euro holds ground", says, "Morgan Stanley analysts reckon the imposition of negative rates could lead to an exodus from euro zone money markets. They expect U.S. money market funds, who have holdings of around 350 billion euros in the euro zone, to liquidate some of their holdings, putting downward pressure on the euro." In other news, the ICI's latest "Money Market Fund Assets" release says, "Total money market fund assets decreased by $7.25 billion to $2.58 trillion for the week ended Wednesday, June 4, the Investment Company Institute reported today. Among taxable money market funds, treasury funds (including agency and repo) decreased by $5.91 billion and prime funds decreased by $3.71 billion. Tax-exempt money market funds increased by $2.38 billion. Assets of retail money market funds increased by $40 million to $903.30 billion. Treasury money market fund assets decreased by $810 million to $200.77 billion, prime money market fund assets decreased by $170 million to $515.34 billion, and tax-exempt fund assets increased by $950 million to $187.19 billion. Assets of institutional money market funds decreased by $7.21 billion to $1.68 trillion. Among institutional funds, Treasury money market fund assets decreased by $5.10 billion to $714.12 billion, prime money market fund assets decreased by $3.54 billion to $890.45 billion, and tax-exempt fund assets increased by $1.43 billion to $72.06 billion."

Yesterday's Wall Street Journal featured a piece called "Fed Officials Growing Wary of Market Complacency". The Journal says Fed officials "are starting to wonder whether the tranquility that has descended on financial markets is a sign that investors have become unafraid of the type of risk that could lead to bubbles and volatility." It continues, "Richard Fisher, president of the Federal Reserve Bank of Dallas, added to the chorus of concern over complacency in an interview Tuesday. "Low volatility I don't think is healthy," he said. "This indicates to me a little bit too much complacency that [interest] rates are going to stay at abnormally low levels forever." The article adds, "Fed officials face a double-edged sword. Officials want to keep interest rates low to boost economic growth and hiring and to lift inflation from levels below the bank's 2% target. But, having been burned by the risk taking that stoked the 2008 financial crisis, they are on the lookout for signs that the policies are having dangerous side-effects in financial markets." It also says, "It is a problem of their own making. They can't have it both ways," said Martin Barnes, chief economist at BCA Research, an investment-advisory firm. "If they want to sustain zero interest rates and push up asset prices, how can they expect to have that with no excesses and no risk taking?" In other news, a press release entitled, "SEC Charges Albany, N.Y.-Based Investment Adviser With Defrauding Clients" tells us (among other things), "The SEC alleges that Valente and ELIV Group attracted clients by falsely assuring them that the principal amount of their investments was fully liquid and "guaranteed" because it was backed by a large money market fund. Client funds were in fact never guaranteed or backed by any money market funds, and the majority of ELIV Group's investments were in highly illiquid investments in privately-held companies."

In its First Quarter 2014 Quarterly Banking Profile, the FDIC says, "Deposit balances were up by $125.8 billion (1.1 percent) in the quarter, as deposits in foreign offices fell by $5.4 billion (0.4 percent) and domestic office deposits increased by $131.1 billion (1.3 percent). Much of the increase in domestic deposits consisted of balances in smaller-denomination accounts. Deposits in accounts of less than $250,000 rose by $85.9 billion (1.7 percent). Nondeposit liabilities increased by $25.4 billion (1.4 percent), as unsecured borrowings increased by $28.1 billion (13.9 percent), and securities sold under repo agreements rose by $22 billion (7.2 percent). Liabilities in trading accounts declined by $22 billion (9.1 percent)." The full report, which can be found at fdic.gov, also says, "Total estimated insured deposits increased by 1.9 percent from the prior quarter and by 2.1 percent from one year earlier. For institutions existing at the start and the end of the first quarter, insured deposits increased during the quarter at 4,932 institutions (73 percent), decreased at 1,760 institutions (26 percent), and remained unchanged at 35 institutions. Total deposits increased by 1.1 percent ($125.8 billion), domestic office deposits increased by 1.3 percent ($131.1 billion), and foreign office deposits decreased by 0.4 percent ($5.4 billion). Domestic noninterest-bearing deposits increased by 1.8 percent ($46.4 billion) and savings deposits and interest-bearing checking accounts increased by 1.9 percent ($105.6 billion), while domestic time deposits decreased by 1.3 percent ($20.8 billion). For the twelve months ending March 31, total domestic deposits grew by 5.3 percent ($495.5 billion), with interest-bearing deposits increasing by 4 percent ($279.1 billion) and noninterest-bearing deposits rising by 8.9 percent ($216.4 billion)."

Federated Investors' Debbie Cunningham writes in her latest "Month in Cash: Wanted -- More Fed governors," Companies and hockey teams adapt well to being shorthanded, but when votes are involved or diverse viewpoints are needed, being even one person down can create problems. So it has been for some time now at the Federal Reserve (Fed) as the molasses pace of confirmation has left the central bank short-staffed for months. It still has three seats out of seven open on its board of governors, nearly a majority, and that's only the case because the Senate confirmed Stanley Fischer to the board the day that governor Jeremy Stein stepped down, Wednesday, May 28. Considering that the governors of the board make up a majority of the twelve member crucial monetary policy-making Federal Open Market Committee (FOMC) (the others being the presidents of some of the regional Fed banks), three open seats represents a significant shortage that has serious consequences from the standpoint of the U.S. economy, not to mention the world. Even if new voices on the FOMC didn't alter a particular vote on policy which is still data driven, we at least would get more viewpoints in speeches, in published dissents and in the influential "dots" chart of rising interest rate projections.... In the meantime, there hasn't been much rate change in the marketplace. The London interbank offered rate (Libor) was completely unchanged and Treasury bills were around a basis point lower. We have not altered our weighted average maturity (WAM) targets at this point because the yield curve has not changed based on any kind of expectations of future tightening at this point. Repo continues to be driven by the overnight fixed-rate reverse repo facility from the New York Fed at five basis points. Probably over the course of the last month we have seen more people going to this and abandoning at least some of their traditional counterparts to a larger degree than we had in the past. We haven't seen major players leave the repo market, but certainly the banking regulations and how they are impacted by capital, leverage and liquidity requirements is allowing them to reduce their book and the Fed is taking over some of that supply."

The Wall Street Journal wrote Friday, "Millennials Are Really Risk Averse," saying, "More than half of people between the age of 21 and 36 have their savings parked in cash," citing a new study entitled "How Millennials Could Upend Wall Street and Corporate America," by the Brookings Institution. "The high cash allocations to accounts like bank CDs and money-market funds, which pay little-to-no interest, suggest young adults are reluctant to put money to work in the U.S. stock market, which has bounced back from the financial crisis and recorded numerous record highs over the past year," states the WSJ. "Citing data from UBS, the Brookings study found that 52% of millennials have their savings in cash. By comparison, all other age groups have 23% of their savings in cash. Millennials also say they only have 28% of their assets in stocks." The WSJ article adds, citing Brookings, "One reason for this avoidance of the stock market stems from the same experience of extreme volatility and risk that the Millennials' great grandparents experienced when they were coming of age during the Great Depression."

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