Daily Links Archives: March, 2021

Reuters writes, "Fed's Quarles says regulators to lay out money market fund reforms in July." The brief explains, "A group of financial regulators will lay out recommendations in July to improve the resilience of money market funds and minimize the chance they will need government support in the future, Federal Reserve Vice Chair Randal Quarles said on Tuesday. Quarles, in his capacity as head of the Financial Stability Board, said the group will focus on the relationship between money market funds and the short-term funding market, particularly the commercial paper market, after a liquidity crunch led to a run on those funds last March that necessitated government intervention." In a speech yesterday entitled, "The FSB in 2021: Addressing Financial Stability Challenges in an Age of Interconnectedness, Innovation and Change," Quarles says, "[A] holistic Review underscored how vulnerabilities in the financial system amplified the economic shocks of the COVID event. In particular, it highlighted the dependence of the system on readily available liquidity, and vulnerabilities if liquidity strains emerge -- in money market mutual funds (MMFs) and open-end funds, through margin calls and in core bond markets. Importantly, it provides a high-level view on how these parts of the financial ecosystem operate and transmit risk while under stress." He explains, "In my view, one of the most significant findings relates to MMFs. The Holistic Review documented how the extremely high demand for liquidity, combined with a flight-to-safety, triggered a 'dash for cash' that hit institutional prime money market funds particularly hard. In the US, prime MMFs publicly offered to institutional investors had outflows of roughly $100 billion, or 30 percent of the funds' assets, over two weeks in mid-March. This was a faster run, in terms of the percentage of fund assets redeemed, than during the turmoil in September 2008. Similar patterns were also seen in Europe, particularly for US dollar-denominated MMFs. Other funds that are active in short-term funding markets, such as ultrashort bond funds, also saw unprecedented outflows in March. The March market turmoil is the second time in roughly a decade that we have witnessed destabilizing runs on MMFs. More concerning this time, however, is that we had taken steps between these events precisely to reduce the likelihood of such runs." Quarles adds, "The FSB will publish a report in July for consultation that will set out consequential policy proposals to improve MMF resilience. The proposals should also reduce the likelihood that government interventions and taxpayer support will be needed to halt future MMF runs. This work will also consider the relationship between MMFs and short-term funding markets, with a particular focus on commercial paper and certificate of deposit markets and the impact of dealer behavior."

Money market fund yields continue to bottom out just above zero, as our flagship Crane 100 remained unchanged in the last week to 0.02%. The Crane 100 Money Fund Index fell below the 1.0% level roughly a year ago in mid-March, and below the 0.5% level in late March. It is down from 1.46% at the start of 2020 and down from 2.23% at the beginning of 2019. Three-quarters of all money funds and over half of MMF assets have since landed on the zero yield floor, though many continue to show some yield. According to our Money Fund Intelligence Daily, as of Friday, 3/26, 634 funds (out of 836 total) yield 0.00% or 0.01% with assets of $2.768 trillion, or 56.7% of the total $4.882 trillion. There are 194 funds yielding between 0.02% and 0.10%, totaling $2.018 trillion, or 41.3% of assets; 8 funds yielded between 0.11% and 0.20% with $96.0 billion, or 2.0% of assets. No funds yield over 0.18%. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 672), shows a 7-day yield of 0.02%, unchanged in the week through Friday, 3/26. The Crane Money Fund Average is down 45 bps from 0.47%, a year ago at beginning of April. Prime Inst MFs were unchanged at 0.04% in the latest week, Government Inst MFs were flat at 0.02%, and Treasury Inst MFs were unchanged at 0.01%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs also yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.02% (unchanged). Tax-exempt MF 7-day yields were also unchanged at 0.01%. (Let us know if you'd like to see our latest MFI Daily.) The latest Brokerage Sweep Intelligence, with data as of March 26, showed no changes in the last week. All major brokerages, with the exception of RW Baird, offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last 49 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too). RW Baird offers a rate of 0.02% for its balances of $100K.

A press release entitled, "ESMA Consults on the Framework for EU Money Market Funds," tells us, "The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, today launches a consultation on potential reforms of the EU Money Market Funds Regulation (MMFR). ESMA aims to review the stress experienced by MMFs during the March 2020 crisis and assess the roles played by markets, investors and regulation, and proposes potential reforms." The release elaborates, "ESMA sets out four types of potential reforms for MMFs: Reforms targeting the liability side of MMFs -- such as decoupling regulatory thresholds from suspensions/gates to limit liquidity stress, and to require MMF managers to use liquidity management tools such as swing pricing; Reforms targeting the asset side of MMFs by e.g. reviewing requirements around liquidity buffers and their use; Reforms targeting both the liability and asset side of MMFs by reviewing the status of certain types of MMFs such as stable Net Asset Value (NAV) MMFs and Low Volatility Net Asset Value (LVNAV); and Reforms that are external to MMFs themselves by assessing whether the role of sponsor support should be modified. In addition, ESMA is also gathering feedback from stakeholders on other potential changes, particularly linked to ratings, disclosure and stress testing." Steven Maijoor, ESMA Chair, comments, "The COVID-19 crisis has been challenging for MMFs. A number of EU MMFs faced significant liquidity issues during March 2020, a period of acute stress, with large redemptions from investors and a severe deterioration in the liquidity of money market instruments.... ESMA is seeking input from stakeholders on potential reforms of the EU MMF regulatory framework, in light of the lessons learnt from the difficulties faced by MMFs last March, with the aim of providing feedback to the Commission ahead of the scheduled legislative review." The release explains, "Responses to this consultations are welcome by 30 June 2021. ESMA will consider the feedback it received to this consultation in Q2 2021 and expects to publish its opinion on the review of the MMF Regulation in the second half of 2021." Finally, it adds, "Article 46 of the MMF Regulation (MMFR), requires the EC to review, following consultations with ESMA, the adequacy of the MMFR from a prudential and economic point of view by 21 July 2022."

Mutual fund technology firm Calastone published a blog entitled, "Money Market Services in Person" featuring Paul Przybylski, Global Head of Product Strategy and Client Service at JP Morgan Asset Management. He comments, "The Covid-19 crisis was unprecedented, and the true global impact is still basically unknown. The speed of the markets' reaction was very rapid and the lessons we learned in 2008 were simply not applicable. The crisis wasn't due to a liquidity or credit event specifically tied to money market funds -- all assets were impacted as banks and investors alike focused on reducing risk. When that happens, they preserve liquidity, which leads to a drop in trading liquidity.... For funds, that meant they struggled to sell assets and raise cash for redemptions. We saw significant gaps between bid and offer prices -- if there was one to begin with -- and obviously the central banks intervened very quickly and put a floor under markets. For prime funds, the volatility began around March 12th and peaked in the week of March 16th. Once the Fed announced the Money Market Mutual Fund Liquidity Facility (MMLF) towards the end of that week we saw a very different dynamic. By April 1, prime MMFs all had neutral to positive flows, and they increased through April." On the topic of money market fund innovation, Przybylski explains, "I think after the Covid crisis treasury functions are being looked at even more as a value and revenue generating area. They need technology at their fingertips that gives them the ability to easily identify where all their liquidity resides and how to optimize that liquidity. Clients are looking for tools that give them instant access to their demand deposit accounts (DDAs) and allow them to optimize those DDAs, move money and segment the cash between three months, six months, nine months and 12 months usage. Tools that give them that level of efficiency are going to win out over those that are just traditional trading platforms." He comments, "The integrations are also key. These can't be standalone products any more -- they have to be integrated into the ecosystem of the treasurer, whether that's connected directly to the treasury management system (TMS) or through a deeper integration where they reside within the core TMS. Features like this are going to be standard in the next one to three years -- table-stakes, as we like to call them." Przybylski adds, "We do expect regulation to come to the credit space, specifically. You're seeing credit fund sponsors begin to phase out their offerings. Two retail players, Vanguard and Fidelity, are doing it possibly because they're looking at positioning those funds to hold more government-like securities. It's going to be interesting when it happens. Given we're about 30% of the market in the credit space, we do think it's a value-add offering for clients to have access to more than just government MMFs."

The Federal Reserve Bank of New York's Liberty Street Economics blog asks, "Did Dealers Fail to Make Markets during the Pandemic?" They write, "In March 2020, as the COVID-19 pandemic disrupted a range of financial markets, the ability of dealers to maintain liquid conditions in these markets was questioned. Reflecting these concerns, authorities took numerous steps, including providing regulatory relief to dealers. In this post, we examine liquidity provision by dealers in several financial markets during the pandemic: how much was provided, possible causes of any shortfalls, and the effects of the Federal Reserve's actions." The piece tells us, "Dealers support market liquidity by intermediating customer trades -- for example, by taking customer sell orders into inventory when buyers are absent. Hence, changes in the size of their inventory positions can indicate whether dealers are performing intermediation activities. The chart below shows that primary dealer net positions in commercial paper (CP) and investment-grade (IG) corporate bonds ... fall starting the week of February 26 and bottom out in the week of March 18 (for CP) and March 25 (for IG bonds) before recovering in April. By comparison, dealer net positions in U.S. Treasury bills, Treasury notes and bonds, and agency residential mortgage-backed securities (RMBS) ... are generally higher or similar in March as compared to their prior levels–although net positions in bills fell sharply in the week of March 25. Overall, dealers cut inventory in some markets but increased or maintained it in others in March." It adds, "In CP and corporate bond markets, limited dealer intermediation and heightened market illiquidity went hand in hand, and improved only after the Fed's actions. For example, the Commercial Paper Funding Facility (CPFF) was announced on March 17, and dealer net positions recovered the week of March 25. Similarly, two corporate bond facilities were announced on March 23 to support IG bonds. Liquidity in the corporate bond market improved on the announcement, and dealer net positions recovered in the week of April 1. In contrast, even as dealers maintained intermediation, market dysfunction continued apace in U.S. Treasury and agency MBS markets in March 2020. What accounts for this disjunction? One possibility is that the amount of liquidity provided by dealers was insufficient to meet the volume of customer selling, as shown for the agency MBS markets. Ultimately, the Fed's massive purchases of Treasury and agency MBS securities helped to accommodate the selling pressure."

A release from the Investment Company Institute tells us that, "Retirement Assets Total $34.9 Trillion in Fourth Quarter 2020." It includes data tables showing that money market funds held in retirement accounts jumped to $574 billion in total, or 13% of the total $4.333 trillion in money funds. MMFs represent 5.2% of the total $11.118 trillion of mutual funds in retirement accounts. The release says, "Total US retirement assets were $34.9 trillion as of December 31, 2020, up 7.5 percent from September and up 9.3 percent for the year. Retirement assets accounted for 33 percent of all household financial assets in the United States at the end of December 2020. Assets in individual retirement accounts (IRAs) totaled $12.2 trillion at the end of the fourth quarter of 2020, an increase of 9.1 percent from the end of the third quarter 2020. Defined contribution (DC) plan assets were $9.6 trillion at the end of the fourth quarter, up 6.8 percent from September 30, 2020. Government defined benefit (DB) plans—including federal, state, and local government plans—held $7.1 trillion in assets as of the end of December 2020, a 7.6 percent increase from the end of September 2020. Private-sector DB plans held $3.4 trillion in assets at the end of the fourth quarter of 2020, and annuity reserves outside of retirement accounts accounted for another $2.5 trillion." The ICI tables also show money funds accounting for $391 billion, or 7%, of the $5.454 trillion in IRA mutual fund assets and $282 billion, or 3%, of the $5.665 trillion in defined contribution plan holdings.

Fitch Ratings published a "Global ESG Money Market Fund Dashboard: 2020" earlier this month, which tells us, "Fitch Ratings estimates that assets under management (AUM) in ESG money market funds (MMFs) increased by around 50% by end-2020 to EUR123 billion. Growth in all MMFs in 2020 was around 20% to USD7.3 trillion. ESG MMF growth was primarily driven by funds converting to an explicit ESG approach -- around 66% of ESG MMFs by AUM are conversions of pre-existing funds. About 60% of ESG MMFs was launched or converted in 2019 or 2020." Fitch continues, "ESG MMF AUM remains concentrated in France. The largest French ESG MMFs are 'standard' MMFs under applicable European regulation and typically have a broader investible pool of assets than US 2a-7 or European 'short-term' MMFs, including more corporate exposure. Fitch defines ESG MMFs as those that explicitly present themselves to market as ESG MMFs, whether through the fund name, stated investment objectives or stated investment characteristics." They comment, "Traditional MMFs have responded to growing investor interest in ESG by adding language to their prospectuses describing how they address ESG considerations in their investment processes. The umbrella fund prospectuses of nine Fitch-rated European short-term MMFs featured ESG language as of end-January 2021.... On a like-for-like basis, Fitch estimates this is an increase of around 10% yoy (see: Global ESG Money Market Fund Dashboard: End-2019, published 12 February 2020). More broadly, most fund managers now integrate ESG considerations in their investment processes to some extent, although not all will explicitly state their approach in their governing documentation." Finally, Fitch writes, "ESG MMFs primarily apply exclusionary investment approaches, based on varying criteria. Given differences in approach, the amount of exclusions may vary considerably between funds. The implementation of the Sustainable Finance Disclosure Regulation in Europe on 10 March 2021 will force funds to provide additional disclosure on their approach to sustainable investment, which may improve investors' ability to differentiate between funds. ESG considerations are typically a neutral factor in Fitch's rating analysis, provided the fund otherwise adheres to Fitch’s credit quality and liquidity criteria guidelines. However, in an extreme scenario, Fitch may elect not to rate an MMF where it believes the fund's ESG investment approach has negligible materiality, resulting in potential reputational or regulatory risk to the fund should investors or regulators conclude that the fund's ESG characteristics are over- or mis-stated." The Dashboard includes an appendix listing the ESG money market funds. The seven largest funds, which are all domiciled in France, include: Amundi Cash Institutions SRI (with E23.2 billion), BNP Paribas Mois ISR (E11.3B), Ostrum Sustainable Tresorerie (E10.9B), Ostrum ISR Cash Eonia (E10.5B), CPR Monetaire ISR (E8.3B), Ostrum Cash Euribor (E7.3B) and BFT Sequin ISR (E4.5B). The largest "short-term" funds include: BlackRock ICS Euro Liquid Environmentally Aware Fund (E4.2B); DWS Institutional ESG Euro Money Market Fund (E4.0B); Morgan Stanley Institutional Liquidity ESG Money Market Portfolio (E3.1BE); BlackRock ICS Sterling Liquid Environmentally Aware Fund (E2.9B); BlackRock ICS US Dollar Liquid Environmentally Aware Fund (E2.3B); BlackRock Wealth Liquid Environment Aware Fund (E2.1B); BlackRock Liquid Environmentally Aware Fund (E1.4B), and State Street ESG Liquid Reserves Fund (E757M).

Barron's writes that, "T. Rowe Price Is Pruning Its Money Funds. Will It Stop There?" The article states, "In yet another example of how zero interest rates are hurting the money-market fund space, T. Rowe Price Group announced this week that it would be liquidating one money fund and merging two others out of existence. The two funds to be merged into the T. Rowe Price Tax-Exempt Money fund (PTEXX) on Aug. 23 are T. Rowe Price New York Tax-Free Money (NYTXX) and T. Rowe Price California Tax-Free Money (PCTXX). This should come as no surprise. 'You can't get a tax exemption on zero income,' jokes Peter Crane, president of Crane Data, a company that tracks money markets. 'In the muni space, the surprise is [T. Rowe] is not getting out entirely.'" Barron's explain, "Single-state money funds, which have the lowest yields and are costly to run on their own, are the most likely to be liquidated, as the recent closures of Vanguard Group's Pennsylvania and New Jersey money funds indicate. Crane has called such funds an 'endangered species.'" The piece also says, "The liquidation of the $21 million T. Rowe Price Institutional Cash Reserves (ICFXX), which the filing said would occur this May 7, makes more sense, but only if you understand the peculiar regulations of money-market funds. There is another much larger retail share class of Cash Reserves (TSCXX) with $4.1 billion in assets. Why not merge the two? While retail money funds have a stable $1 price or net asset value, institutional ones have a floating NAV because of a 2016 regulatory change. Despite an identical strategy, legally 'the Institutional Cash Reserves Fund can't be merged with the Cash Reserves Fund because it has a floating net asset value,' [T. Rowe spokesperson] Benintende says." For more on recent MMF liquidations, see these Crane Data News briefs: "March MFI: Liquidations, Changes; Ameriprise's Chris Melin; Deposits" (3/5/21); "SunAmerica Liquidating AIG Govt MMF; ICI, Weekly Portfolio Holdings" (2/18/21); "SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ" (9/28/20); "Federated to Liquidate State Muni MFs" (9/4/20).

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, which shows money fund assets falling for the first time after five straight weeks of increases. Money fund assets are up $89 billion, or 2.1%, year-to-date in 2021. Inst MMFs up $113 billion (4.1%), while Retail MMFs are down $24 billion (-1.6%). Over the past 52 weeks, money fund assets have increased by $450 billion, or 11.9%, with Retail MMFs rising by $34 billion (2.4%) and Inst MMFs rising by $416 billion (17.7%). ICI's "Assets" release says, "Total money market fund assets decreased by $6.51 billion to $4.39 trillion for the week ended Wednesday, March 17.... Among taxable money market funds, government funds increased by $346 million and prime funds decreased by $6.68 billion. Tax-exempt money market funds decreased by $179 million." ICI's stats show Institutional MMFs increasing $3.5 billion and Retail MMFs decreasing $10.0 billion. Total Government MMF assets, including Treasury funds, were $3.768 trillion (85.9% of all money funds), while Total Prime MMFs were $515.9 billion (11.8%). Tax Exempt MMFs totaled $101.6 billion (2.3%). (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 $10.01 billion to $1.50 trillion. Among retail funds, government money market fund assets decreased by $7.83 billion to $1.16 trillion, prime money market fund assets decreased by $1.82 billion to $255.55 billion, and tax-exempt fund assets decreased by $356 million to $89.50 billion." Retail assets account for just over a third of total assets, or 34.2%, and Government Retail assets make up 77.0% of all Retail MMFs. ICI adds, "Assets of institutional money market funds increased by $3.49 billion to $2.88 trillion. Among institutional funds, government money market fund assets increased by $8.18 billion to $2.61 trillion, prime money market fund assets decreased by $4.86 billion to $260.39 billion, and tax-exempt fund assets increased by $177 million to $12.05 billion." Institutional assets accounted for 65.8% of all MMF assets, with Government Institutional assets making up 90.6% of all Institutional MMF totals.

The New York Times wrote an article entitled, "The Financial Crisis the World Forgot," earlier this week, which briefly mentions money market funds. It says, "The Federal Reserve crossed red lines to rescue markets in March 2020. Is there enough momentum to fix the weaknesses the episode exposed?" They explain, "As March wore on, each hour incubating a new calamity, policymakers were forced to cross boundaries, break precedents and make new uses of the U.S. government's vast powers to save domestic markets, keep cash flowing abroad and prevent a full-blown financial crisis from compounding a public health tragedy. The rescue worked, so it is easy to forget the peril America's investors and businesses faced a year ago. But the systemwide weaknesses that were exposed last March remain, and are now under the microscope of Washington policymakers." The article tells us, "The question policymakers and lawmakers are now grappling with is how to fix those vulnerabilities, which could portend problems for the Treasury market and money market funds if investors get seriously spooked again. The Fed's rescue ramps up the urgency to safeguard the system. Central bankers set a precedent by saving previously untouched markets, raising the possibility that investors will take risks, assuming the central bank will always step in if things get bad enough." It adds, "There's some bipartisan appetite for reform: Trump-era regulators began a review of money markets, and Treasury Secretary Janet L. Yellen has said she will focus on financial oversight. But change won't be easy. Protests in the street helped to galvanize financial reform after 2008. There is little popular outrage over the March 2020 meltdown, both because it was set off by a health crisis -- not bad banker behavior -- and because it was resolved quickly. Industry players are already mobilizing a lobbying effort, and they may find allies in resisting regulation, including among lawmakers. 'I would point out that money market funds have been remarkably stable and successful,' Senator Patrick J. Toomey, Republican of Pennsylvania, said during a Jan. 19 hearing." In other news, ICD published a press release entitled, "Institutional Investors Search for Yield in Cash Portfolios," which tells us, "Treasury teams are keeping cash safe and liquid in the first half of 2021 but are going further out on the curve in search of yield, according to a recent survey from ICD, treasury's trusted independent portal provider of money market funds and other short-term investments. According to the ICD 2021 Client Survey, 70% of Americas respondents said they are expanding their investment portfolios to include new products beyond traditional cash investments." ICD CEO Tory Hazard comments, "With more visibility into operating cash requirements, companies are feeling more confident with T+1 versus same-day liquidity in exchange for a higher return.... Currently these products are yielding significantly more than traditional cash investments." The release continues, "According to Crane Data, short duration bond funds, for example, were yielding 32 times government money market funds, on average, as of February 28, 2021."

The ICI's 2021 Mutual Funds and Investment Management Conference kicked off on Monday and continues Wednesday afternoon (w/Acting SEC Chair Allison Herren Lee speaking). (See our March 16 News, "ICI's Pan Defends Money Funds at MFIMC; Reforms Have Big Drawbacks.") On Monday, a panel entitled, "Developments in Investment Management: Keeping Up With Regulators" also featured some comments on potential MMF reforms. The SEC's Sarah ten Siethoff commented on a timeline, "I can tell you certainly that determining recommendations for further reform is an area that's going to be a huge focus for staff work this year.... We put out a request for comment on the President's Working Group report that listed a number of potential options for reform and the comment deadline for that is next month. We are definitely looking forward to receiving comments there.... Honestly, what's welcome is not just comment on options that we put forth, but if people have other ideas.... This has been a thorny subject for a long time, as I'm sure many in the audience know. So, we're certainly open to any options and ideas that people have for solving this perennial problem." She continued, "I think, certainly, resilient money market funds and resilient short-term funding markets are really a key foundation for economic activity. Every time we have one of these events, we learn what a central role the short-term funding markets play in our system and how much they form that bedrock. So that really is our focus, and I imagine everyone's focus is making sure that they get to a more resilient place.... I've done now two PWG reports on money market fund reform options. I hope to not do a third!" Finally, ten Siethoff adds, "I'm really looking forward to engaging people. Obviously, those options listed in the report are just options. Some of them we've requested comment on before, but every event has a little bit that's new and different. I think what happened in March, 2020 -- yes, there was another run, but it was a little bit different than [in the] past. So, some of it we're looking for a fresh perspective in light of that. Some are obviously totally new options, looking in light of what happened last March. I really just encourage people to engage on this topic because it's certainly going to be a focus for the commission." See the SEC's Request for Comment here, and see these Crane Data News pieces: "Fermat Comments on PWG Report" (3/10/21); "Professor Gordon's Nutty PWG Comments: Backs Buffer; Weekly Holdings" (3/3/21); and, "SEC Wants Comments on PWG Report" (2/8/21).

ICI 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 March 10 News, "March MF Portfolio Holdings: Repo Jumps; Treasuries, Agencies Decline.") The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in February, prime money market funds held 30.4 percent of their portfolios in daily liquid assets and 47.0 percent in weekly liquid assets, while government money market funds held 75.5 percent of their portfolios in daily liquid assets and 86.1 percent in weekly liquid assets." Prime DLA was down from 30.6% in January, and Prime WLA increased from 44.0%. Govt MMFs' DLA increased from 71.5% in January and Govt WLA increased from 80.7% from the previous month. ICI explains, "At the end of February, prime funds had a weighted average maturity (WAM) of 47 days and a weighted average life (WAL) of 64 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 47 days and a WAL of 98 days." Prime WAMs were up one day from the previous month, while WALs were up three from the previous month. Govt WAMs were down one day while WALs were down two days from January. Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $234.66 billion in January to $199.53 billion in February. Government money market funds' holdings attributable to the Americas rose from $3,240.21 billion in January to $3,256.90 billion in February." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $199.5 billion, or 38.0%; Asia and Pacific at $86.7 billion, or 16.5%; Europe at $232.6 billion, or 44.3%; and, Other (including Supranational) at $5.7 billion, or 1.2%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.257 trillion, or 86.8%; Asia and Pacific at $134.7 billion, or 3.6%; Europe at $340.9 billion, 9.1%, and Other (Including Supranational) at $18.1 billion, or 0.5%."

Federated Hermes President & CEO Chris Donahue spoke recently at RBC Capital Markets' Global Financials Conference and briefly discussed zero rates, fee waivers and asset flows. He comments, "In terms of what's going on with recent moves in short rates ... well, there's been a lot of noise, but overall, what you have is a lot of money and not as much supply of paper like T-bills on the short end. So therefore, you have lower overnight repo rates. Over the last couple of weeks, they've been near the bottom of one to three basis points, and the T-bills, if you go out the curve just a little bit, they're in the three to eight basis point range. They're low rates." Donahue continues, "Come the second half of the year, we're thinking this thing is all going to improve and it could improve earlier if the following occurs. For example, we figure it's about a 50/50 shot ... that the Fed will put five basis points on the reverse repo and maybe add five to the IOER. That would be a meaningful move. Part of the reason for that is to get more rate on the short side to keep the machinery well-greased and proceeding ahead. Another thing that could happen is moving the tax date from April 15th to July 15th like they did last year. This would basically diminish the amount of money that washes up on the Treasury's beach and therefore would be a better deal for them issuing more supply. And maybe they keep what's known as the SLR intact for the rest of the year. They haven't said what they're going to do." He tells RBC, "Then you have the stimulus that's coming out. Over time, we'd expect that would both add assets to our assets under management and add a couple of [basis points] down the road to the basic interest rates as well." When asked about money fund assets, he responds, "We expect the money fund assets to be up. Some of the reasons for that are you still have increasing money supply numbers.... With this stimulus, you're going to print a lot more money and that money has to float around. We saw it the last time, some of that money ends up in our funds, at least for a certain amount of time." Donahue adds, "Overall, the money funds are a ready, willing and able cash management service. And that gets a little bit into what's going on on the deposit side. If you look at it all during corona time, from March to March, the deposits are up $3 trillion, when banks don't want the money, that's about 23 percent. The money funds were up about $650 billion and that's about 18 percent. So, everybody's up because everybody's got a lot of cash. I think that will continue on. The banks are lowering their rates on deposits because they don't want them for a whole host of reasons, and the money funds, even though we are waiving, will still be a warm and loving home as a cash management service."

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, which shows money fund assets rising for the 5th week in a row and for the 8th time in the past 10 weeks. Money fund assets are up $95 billion, or 2.2%, year-to-date in 2021. Inst MMFs up $109 billion (3.9%), while Retail MMFs are down $14 billion (-0.9%). Over the past 52 weeks, money fund assets have increased by $615 billion, or 16.3%, with Retail MMFs rising by $79 billion (5.5%) and Inst MMFs rising by $536 billion (22.8%). ICI's "Assets" release says, "Total money market fund assets increased by $29.69 billion to $4.39 trillion for the week ended Wednesday, March 10.... Among taxable money market funds, government funds increased by $33.27 billion and prime funds decreased by $3.90 billion. Tax-exempt money market funds decreased by $330 million." ICI's stats show Institutional MMFs increasing $26.2 billion and Retail MMFs increasing $3.5 billion. Total Government MMF assets, including Treasury funds, were $3.768 trillion (85.8% of all money funds), while Total Prime MMFs were $522.6 billion (11.9%). Tax Exempt MMFs totaled $101.7 billion (2.3%). (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 increased by $3.52 billion to $1.51 trillion. Among retail funds, government money market fund assets increased by $6.11 billion to $1.16 trillion, prime money market fund assets decreased by $2.06 billion to $257.37 billion, and tax-exempt fund assets decreased by $528 million to $89.85 billion." Retail assets account for just over a third of total assets, or 34.4%, and Government Retail assets make up 77.0% of all Retail MMFs. ICI adds, "Assets of institutional money market funds increased by $26.17 billion to $2.88 trillion. Among institutional funds, government money market fund assets increased by $27.15 billion to $2.60 trillion, prime money market fund assets decreased by $1.84 billion to $265.25 billion, and tax-exempt fund assets increased by $858 million to $11.87 billion." Institutional assets accounted for 65.6% of all MMF assets, with Government Institutional assets making up 90.4% of all Institutional MMF totals.

A press release entitled, "ICD Survey Reveals Treasury Trends in Cash Investments, Technology in 2021," summarizes the online money fund trading portal's "2021 Client Survey." It says, "ICD, an independent portal provider of money market funds and other short-term investments, released the findings of its annual client survey today. The 2021 ICD Client Survey, conducted in January, reveals this year's plans and preferences for cash investments and technology from over 150 treasury professionals in the U.S., Canada, UK and Europe." CEO Tory Hazard comments, "This year's survey respondents indicated cash levels would remain elevated into 2021, but they are also opportunistic, looking to go out further on the curve to find yield. Treasury workflow optimization is also a major theme this year as investors look to technology to drive efficiency." Among the highlights: "61% percent of respondents to ICD's client survey said they are maintaining or increasing cash balances in the first half of 2021; 70% of organizations in the Americas are investing in alternative products; 41% of respondents globally said they are interested in ESG and Socially Responsible Investing instruments; 86% saw their treasury teams shrink or stay the same in 2020, while 99% expect their roles and responsibilities to increase or stay the same, indicating that expectations for treasury are increasing while treasury staff is not; and, 66% said they were taking on treasury transformation projects while only 15% said they were implementing a treasury management system (TMS), suggesting integration of technology is key." The release adds, "With approximately $5 trillion in trades annually running through ICD Portal from over 400 clients across 65 industries and 43 countries, ICD is a proxy for treasury's short-term investment behavior. For the fourth consecutive year, 99% of clients taking the survey rated ICD's client service as excellent or above average. In addition, the number of respondents reporting that they would recommend ICD to a colleague resulted in a Net Promoter Score (NPS) of 79 for ICD, which compares to an average NPS of 35% for the financial technology industry."

A second serious comment letter has been posted in response to the February announcement, "SEC Requests Comment on Potential Money Market Funds Reform Options Highlighted in President's Working Group Report." (See the list of comment letters here.) The latest response is from Adam Dener of Fermat Capital Management. He writes, "We welcome the opportunity to respond to the December 2020 request for comment on the '`President's Working Group Report on Money Market Funds'. Fermat Capital Management, LLC manages multiple investment strategies, including in trade finance, where the underlying risk is often referred to as 'working capital', and insurance-linked securities, where the underlying risk is often referred to as 'catastrophe risk'. We manage money on behalf of regulated investors including insurance companies, pension plans and banks, as well as sovereign wealth funds, family office and private wealth." Dener's comment continues, "While the Report discusses various reform measures that policymakers could consider for improving the resilience of prime and tax-exempt money market funds ('PMMFs') and broader short-term funding markets, the data analysis and the potential policy responses presented in the Report are incomplete. This letter outlines additional data analysis and policy measures that the President's Working Group ('PWG') should consider in order to inform a comprehensive and effective set of policy recommendations. We have organized our letter into two main sections. The first section focuses on additional data analysis that the PWG should undertake to reexamine the PMMFs and short-term funding markets that led to the crisis. The second section focuses on additional policy responses that could be then considered as a result of the supplemental analysis discussed in the first section." It adds, "The Report passively explores numerous financial markets in terms of their interconnectedness and the motivations of various market actors but doesn't sufficiently address the drivers of these critical inter-relationships and cross-market investor behavior correlations that stem from fundamental structural vulnerabilities within PMMFs. This section of our letter highlights four key areas that were not examined in the Report and that require more research and consideration. A comprehensive analysis of the 2020 market dislocation is essential to making robust and effective policy recommendations. This additional analysis should be performed and documented by public agencies as input into PWG work in advance of proposing further PMMF reform options." (For more, see our March 3 Crane Data News, "Professor Gordon's Nutty PWG Comments: Backs Buffer; Weekly Holdings.")

The Wall Street Journal writes again on Greensill Capital's growing woes. The article, "`Greensill Capital Tumbles Into Insolvency, Spreading Financial Pain," tells us, "Greensill Capital filed for insolvency protection Monday, days after regulators took over its banking unit and Credit Suisse Group AG froze investment funds that were critical to the startup's operations. The unwinding has rippled to holders of the Credit Suisse funds, German municipalities that deposited money with Greensill's bank, and a high-profile duo of venture-capital investors. Greensill specialized in supply-chain finance, a type of short-term cash advance to companies to stretch out the time they have to pay their bills. The firm was once worth $4 billion based on investments from SoftBank Group Corp.'s Vision Fund. The collapse marks a high-profile blow for the mammoth Japanese investor." The Journal explains, "Greensill's operations seized last week when Credit Suisse stopped investors from moving money in or out the $10 billion in supply-chain investment funds. GAM followed suit the next day with its $800 million fund. Both have said they would wind down the funds. The Credit Suisse move was triggered after Greensill lost coverage from a set of credit insurers that provided protection in case the startup's clients defaulted. The insurance was crucial because it made Greensill's assets appear safer to Credit Suisse's institutional investors, some of whom are restricted from putting cash into riskier investments." It adds, "A preliminary tally shows that as much as 700 million euros of Greensill Bank's deposits, equivalent to $830 million, out of a total of €3.6 billion, or $4.3 billion, weren't covered by deposit insurance, according to a person familiar with the bank. Some of those deposits were held by German municipalities, which were attracted to Greensill for its slightly higher interest rates. German banks have increasingly been passing on negative rates to their customers. Municipalities in Germany aren't eligible for deposit protection."

We just recently stumbled across a press release entitled, "Hazeltree Appoints Jonathan Spirgel to Lead Cash and Liquidity Management Technology," which tells us, "Hazeltree, the leading provider of integrated treasury and portfolio finance solutions, today announced the appointment of industry veteran, Jonathan Spirgel, as Managing Director and Global Head of Cash and Liquidity Management. Mr. Spirgel will support Hazeltree's clients in delivering operational efficiencies, risk mitigation, and yield optimization related to their aggregated cash and liquidity needs. Mr. Spirgel comes to Hazeltree with over three decades of experience in the Liquidity, Cash and Collateral industry." It explains, "Mr. Spirgel has extensive experience in building Liquidity, Collateral and Segregation solutions for large, complex institutional clients. Mr. Spirgel created the first and most successful Liquidity Investment Portal, as well as other market-leading patented financial solutions including Commodity ETF's and Segregated Margin systems. Mr. Spirgel was a member of the senior management team of BNY Mellon, where he spent the bulk of his career." The release says, "Hazeltree offers financial institutions streamlined solutions to manage and optimize their counterparty relationships and unlock hidden costs across rates, funding, cash, and collateral.... Hazeltree automates spreadsheet-based cash and liquidity management processes which is especially critical during a remote-working environment." Jonathan Spirgel, Hazeltree Global Head of Cash and Liquidity Management, comments, "During these challenging times, we are committed to helping our customers effectively manage their Liquidity and Margin. Hazeltree is poised to expand our products and services globally and continue to build the solutions our clients need to manage their complex treasury organizations, and I am keen to leverage the opportunities we have to meet client needs in these unprecedented conditions." President and CEO Sameer Shalaby adds, "Jonathan's proven track record building businesses and solutions will be crucial to help our clients address the many challenges they are facing, from turbulent market conditions, to UMR compliance requirements, to the low interest rate environment."

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, which shows money fund assets rising for the 7th time in the past 8 weeks. Money fund assets are up $65 billion, or 1.8%, year-to-date in 2021. Inst MMFs up $83 billion (3.7%), while Retail MMFs down $18 billion (-1.3%). Over the past 52 weeks, money fund assets have increased by $679 billion, or 19.3%, with Retail MMFs rising by $84 billion (6.3%) and Inst MMFs rising by $595 billion (27.4%). ICI's "Assets" release says, "Total money market fund assets increased by $18.55 billion to $4.36 trillion for the week ended Wednesday, March 3.... Among taxable money market funds, government funds increased by $21.39 billion and prime funds decreased by $2.32 billion. Tax-exempt money market funds decreased by $521 million." ICI's stats show Institutional MMFs increasing $24.1 billion and Retail MMFs decreasing $5.5 billion. Total Government MMF assets, including Treasury funds, were $3.735 trillion (85.6% of all money funds), while Total Prime MMFs were $526.5 billion (12.1%). Tax Exempt MMFs totaled $101.4 billion (2.3%). (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 $5.52 billion to $1.51 trillion. Among retail funds, government money market fund assets decreased by $2.81 billion to $1.16 trillion, prime money market fund assets decreased by $2.49 billion to $259.43 billion, and tax-exempt fund assets decreased by $226 million to $90.38 billion." Retail assets account for just over a third of total assets, or 34.6%, and Government Retail assets make up 76.8% of all Retail MMFs. ICI adds, "Assets of institutional money market funds increased by $24.07 billion to $2.85 trillion. Among institutional funds, government money market fund assets increased by $24.20 billion to $2.58 trillion, prime money market fund assets increased by $167 million to $267.09 billion, and tax-exempt fund assets decreased by $295 million to $11.01 billion." Institutional assets accounted for 65.4% of all MMF assets, with Government Institutional assets making up 90.3% of all Institutional MMF totals.

In the March edition of its "What Does it Mean for FinReg?" newsletter, Citi Securities Services includes a brief entitled, "It Begins: Money Market Funds Reform 2.0." Author Sean Tuffy writes, "As part of the global COVID-19 postmortem, the Securities and Exchange Commission (SEC) has initiated a review of its money market fund regulations. The SEC is looking for comments on the potential measures that were highlighted in the December 2020 report issued by the Treasury that was commissioned as a result of the US government stepping in to backstop money market funds during the volatility experienced in March and April. The Treasury's report concluded that reform is needed to reduce the potential risk that money market funds pose to short-term funding markets in times of stress and outlined a number of potential actions." He explains, "Almost all of the suggestions have been proposed during previous reform efforts. They cover the spectrum from tactical changes, such as the removal of the connection between fund liquidity and the deployment of gates, to more structural changes, such as requiring all money market funds prices be floating, rather than fixed at $1. Some of the suggestions will likely be welcomed by the industry. For example, even before last spring, many in the industry had called for automatic fee triggers if certain liquidity thresholds are breached to be revised. The industry has argued that these triggers may be counterproductive and actually exacerbate a liquidity issue because they could hasten redemptions as funds near the thresholds. However, not all suggestions have been welcomed and it is likely there will be push back from the industry on the proposals that would impose more bank-like regulation on money market funds, such as capital buffer requirements and the suggestion to make all funds floating NAV." Finally, Citi's update adds, "The new leadership at the SEC and the US Treasury could mean that there is more of an appetite for a larger structural reform. Ultimately, how far reaching any potential reform is depends largely on if policymakers believe that money market funds present a potential systemic risk and should be considered more like banking products than fund products. Given this, the SEC's request for feedback is the first step in the process that could transform the money market fund industry."

The Wall Street Journal writes "Greensill Problems Build as Regulator Watches Over Banking Unit," which says, "Pressure mounted on embattled SoftBank Group Corp.-backed Greensill Capital as it scrambled to sell core parts of its business and regulators intensified supervision of its banking unit.... [O]n Tuesday, a second fund manager, GAM Holding AG, barred investors from trading in and out of its Greensill-connected fund 'as a result of recent market developments' and related media coverage. It plans to wind down the $842 million fund and return the money to investors. Greensill's business model was upended Monday after Credit Suisse made a similar move, suspending $10 billion in investment funds that contain securities created by the financial startup. U.K.-based Greensill was founded in 2011 by Mr. Greensill, a former Citigroup Inc. and Morgan Stanley financier. It specializes in an area known as supply-chain finance, a form of short-term cash advance that lets companies stretch out the time they have to pay their bills." The piece explains, "Greensill packages the cash advances it makes to companies into bondlike securities. The GAM and Credit Suisse funds invested exclusively in Greensill-generated assets, selling them on to investors looking to eke out higher returns than they could get from traditional money-market funds.... The Wall Street Journal reported Monday that Greensill had hired restructuring advisers and could file for insolvency, the U.K. equivalent of bankruptcy, within days, a move that was sparked by the closure of the funds."

The Wall Street Journal writes that, "Americans of All Stripes Are Flush With Cash." Subtitled, "Savings rates have spiked and many American households are sitting on large cash balances," the piece explains, "As a group, Americans have amassed an astounding amount of savings during the pandemic. A lot of that money rests in the bank accounts of the rich, but -- and this is crucial -- not all of it. The Commerce Department on Friday reported that personal income shot up a seasonally adjusted 10% in January from December, buoyed by the latest round of pandemic-relief payments. Spending rose strongly, too, but with a gain of 2.4% from the prior month, not by nearly as much. And with that, the personal saving rate -- or saving as a share of after-tax income -- shot to 20.5% from 13.4%. That marks its highest level since May. The only time the saving rate was higher before the pandemic was during World War II. The elevated savings rate isn't just about government payments. It also stems from the weakness in services spending that has occurred during the Covid-19 crisis as people have forgone things like vacations and dining out." The Journal piece adds, "The high saving rates that have been in place since the pandemic began have added up to a lot more cash on household balance sheets. Federal Reserve figures show that as of the end of the third quarter households had $2.2 trillion more in cash and cash equivalents than at the end of 2019. That amount is undoubtedly higher now and, with another round of government relief in the works, could go higher still. As the pandemic eases, there will be plenty of money to spend."

The Federal Deposit Insurance Corporation released its latest "FDIC Quarterly Banking Profile" last week, which reviews "fourth quarter 2020 performance results for FDIC-insured institutions." The press release says, "For the commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC), aggregate net income totaled $59.9 billion in fourth quarter 2020, an increase of $5 billion (9.1 percent) from a year ago. The improvement in quarterly net income was led by a reduction in provision expenses. Financial results for fourth quarter 2020 are included in the FDIC's latest Quarterly Banking Profile.... The average net interest margin fell by 60 basis points from a year ago to 2.68 percent, matching third quarter's level. Net interest income declined for a fifth consecutive quarter, dropping by $5.4 billion (3.9 percent) from a year ago. The year-over-year reduction in yields on earning assets outpaced the decline in average funding costs, which are at record lows. Less than half of all banks (42.9 percent) reported lower net interest income compared to a year ago." The release continues, "The Deposit Insurance Fund totaled $117.9 billion in the fourth quarter, up $1.5 billion from the third quarter. The quarterly increase was led by assessment revenue and interest earned on investment securities held by the fund. The reserve ratio declined by 1 basis point from the previous quarter to 1.29 percent solely as a result of strong estimated insured deposit growth.... During the fourth quarter, three new banks opened, 31 institutions were absorbed through mergers, and two banks failed. 5,001 commercial banks and savings institutions filed fourth quarter Call Reports and are insured by the Federal Deposit Insurance Corporation (FDIC) as of December 31, 2020." A statement entitled, "Remarks by FDIC Chairman Jelena McWilliams and Director of the Division of Insurance and Research Diane Ellis on the Fourth Quarter 2020 Quarterly Banking Profile" explains, "While banking industry income for the full year 2020 declined from full year 2019 levels, banks remained resilient in fourth quarter 2020, consistent with the improving economic outlook. Fourth quarter net income rose, primarily due to lower provision expenses for credit losses and higher noninterest income. Net interest margin was unchanged from the record low level reached last quarter. Deposit growth accelerated in the fourth quarter, reflecting persistently high savings rates and lower spending. Banks reported modest declines in asset quality and loan volume.... The low interest rate environment coupled with economic uncertainties will continue to challenge the banking industry, placing downward pressure on revenue and the net interest margin. However, the banking industry maintains strong capital and liquidity levels, which can mitigate potential future losses. The Deposit Insurance Fund (DIF) balance was $117.9 billion on December 31, up $1.5 billion from the end of the third quarter. However, the reserve ratio declined one basis point to 1.29 percent, solely because of strong estimated insured deposit growth." It adds, "[D]eposits increased in the fourth quarter, rising $707 billion (4.1 percent) from third quarter. While the increase in deposits for the fourth quarter is below the quarterly increases reported during the first half of 2020, it is the third largest quarterly increase ever reported in the Quarterly Banking Profile.... The DIF balance was $117.9 billion on December 31, up $1.5 billion from the end of the third quarter. Assessment revenue was the primary driver of the increase in the fund. Interest earned on investment securities held by the DIF also increased the fund balance. However, unrealized losses on available-for-sale securities held by the DIF offset the effect of interest income. Estimated insured deposits grew by a robust 2.2 percent during the fourth quarter and stood at $9.1 trillion on December 31. Although this growth is below the record increases experienced during the first and second quarters of 2020, the growth rate was the highest fourth quarter growth rate since 2008, excluding quarters when the Dodd-Frank Act TAG program was in effect."