​

ICI'​s latest weekly "Money Market Fund Assets" report shows MMFs increasing for the second week in a row following six weeks of declines. The release says, "Total money market fund assets increased by $​14.​94 billion to $​4.​50 trillion for the week ended Wednesday, July 28, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $​11.​71 billion and prime funds increased by $​4.​35 billion. Tax-​exempt money market funds decreased by $​1.​11 billion." Money fund assets are up by $​205 billion, or 4.​8%, year-​to-​date in 2021. Inst MMFs are up $​307 billion (​11.​1%), while Retail MMFs are down $​103 billion (-​6.​7%).

ICI'​s stats show Institutional MMFs increasing $​19.​0 billion and Retail MMFs decreasing $​4.​1 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​3.​926 trillion (​87.​2% of all money funds), while Total Prime MMFs were $​484.​3 billion (​10.​8%). Tax Exempt MMFs totaled $​91.​6 billion (​2.​0%). Over the past 52 weeks, money fund assets have decreased by $​68 billion, or -​1.​5%, with Retail MMFs falling by $​115 billion (-​7.​5%) and Inst MMFs rising by $​47 billion (​1.​5%). (​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.)

ICI explains, "Assets of retail money market funds decreased by $​4.​09 billion to $​1.​42 trillion. Among retail funds, government money market fund assets decreased by $​2.​21 billion to $​1.​12 trillion, prime money market fund assets decreased by $​1.​49 billion to $​224.​06 billion, and tax-​exempt fund assets decreased by $​390 million to $​80.​01 billion." Retail assets account for just under a third of total assets, or 31.​6%, and Government Retail assets make up 78.​6% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $​19.​03 billion to $​3.​08 trillion. Among institutional funds, government money market fund assets increased by $​13.​91 billion to $​2.​81 trillion, prime money market fund assets increased by $​5.​84 billion to $​260.​27 billion, and tax-​exempt fund assets decreased by $​723 million to $​11.​60 billion." Institutional assets accounted for 68.​4% of all MMF assets, with Government Institutional assets making up 91.​2% of all Institutional MMF totals.

ICI also released its latest monthly "Trends in Mutual Fund Investing" and "Month-​End Portfolio Holdings of Taxable Money Funds" for June 2021. The monthly "Trends" report shows that money fund assets decreased $​73.​4 billion in June to $​4.​534 trillion. This follows increases of $​78.​6 billion in May, $​31.​9 billion in April, $​129.​4 billion in March and $​39.​4 billion in February. But MMFs decreased $​5.​2 billion in January, $​10.​0 billion in December and $​12.​0 billion in November. Assets also fell $​47.​6 billion in October, $​118.​4 billion in September, $​56.​7 billion in August and $​55.​4 billion in July. For the 12 months through June 30, 2021, money fund assets have decreased by $​100.​4 billion, or -​2.​2%. (​Month-​to-​date in June through 7/​28, MMF assets have decreased by $​34.​0 billion according to Crane'​s MFI Daily.)

Their monthly release states, "The combined assets of the nation’​s mutual funds increased by $​191.​83 billion, or 0.​7 percent, to $​25.​99 trillion in June, according to the Investment Company Institute’​s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $​38.​65 billion in June, compared with an inflow of $​22.​54 billion in May.... Money market funds had an outflow of $​73.​37 billion in June, compared with an inflow of $​78.​92 billion in May. In June funds offered primarily to institutions had an outflow of $​66.​49 billion and funds offered primarily to individuals had an outflow of $​6.​88 billion."

The Institute'​s latest statistics show that Taxable MMFs lost assets while Tax Exempt MMFs increased last month. Taxable MMFs decreased by $​73.​9 billion in June to $​4.​441 trillion. Tax-​Exempt MMFs increased $​0.​6 billion to $​93.​5 billion. Taxable MMF assets decreased year-​over-​year by $​64.​1 billion (-​1.​4%), while Tax-​Exempt funds fell by $​36.​2 billion over the past year (-​27.​9%). Bond fund assets increased by $​72.​1 billion in June to a record $​5.​513 trillion; they'​ve risen by $​795.​4 billion (​16.​9%) over the past year.

Money funds represent 17.​4% of all mutual fund assets (​down 0.​5% from the previous month), while bond funds account for 21.​2%, according to ICI. The total number of money market funds was 316, the same as the prior month but down from 358 a year ago. Taxable money funds numbered 251 funds, and tax-​exempt money funds numbered 65 funds.

ICI'​s "Month-​End Portfolio Holdings" confirms another massive spike in Repo and drop in Treasuries last month. Treasury holdings in Taxable money funds still remain the largest composition segment (​since surpassing Repo last April). Treasury holdings plunged $​113.​3 billion, or -​5.​1%, to $​2.​105 trillion, or 47.​4% of holdings. Treasury securities have decreased by $​243.​7 trillion, or 10.​4%, over the past 12 months. (​See our July MF Portfolio Holdings: Repo Surge Again on RRP; T-​Bills Plunge.")

Repurchase Agreements were the second largest composition segment; repos jumped by $​238.​0 billion, or 17.​6%, to $​1.​588 trillion, or 35.​8% of holdings. Repo holdings have increased $​679.​6 billion, or 74.​8%, over the past year. U.​S. Government Agency securities were the third largest segment; they decreased $​42.​1 billion, or -​7.​8%, to $​498.​4 billion, or 11.​2% of holdings. Agency holdings have fallen by $​327.​6 billion, or -​39.​7%, over the past 12 months.

Certificates of Deposit (​CDs) remained in fourth place; they decreased by $​46.​9 billion, or -​24.​0%, to $​148.​4 billion (​3.​3% of assets). CDs held by money funds shrank by $​69.​3 billion, or -​31.​8%, over 12 months. Commercial Paper took fifth place, down $​26.​5 billion, or -​15.​7%, to $​142.​1 billion (​3.​2% of assets). CP has decreased by $​70.​9 billion, or -​33.​3%, over one year. Other holdings increased to $​25.​3 billion (​0.​6% of assets), while Notes (​including Corporate and Bank) were down to $​4.​1 billion (​0.​1% of assets).

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased to 44.​575 million, while the Number of Funds was unchanged at 251. Over the past 12 months, the number of accounts rose by 5.​218 million and the number of funds decreased by 27. The Average Maturity of Portfolios was 38 days, down 5 days from May. Over the past 12 months, WAMs of Taxable money have decreased by 5.

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Today, we quote from several more comment letters written in response to the European Securities and Markets Authority'​s (​ESMA'​s) "Consultation on EU Money Market Fund Regulation - Legislative Review." The first one states, "J.​P. Morgan Asset Management (​JPMAM) respectfully submits its response to the Consultation Report of the European Securities and Markets Authority (​ESMA) on EU Money Market Fund Regulation (​MMFR). JPMAM is one of the world'​s largest providers of cash solutions, managing in excess of $​710 billion in money market fund (​MMF) assets. JPMAM'​s Luxembourg domiciled MMF assets are in excess of $​203 billion. JPMAM utilises a variety of fund vehicle structures for its Luxembourg Short Term MMFs, including LVNAV (~$​141 billion), CNAV (~$​50 billion), and VNAV (~$​12 billion), denominated in EUR, USD, GBP, SGD, and AUD."

JPMAM explains, "We agree with ESMA that there was a lack of liquidity in the underlying markets.... Banking sector regulatory reforms implemented after the GFC, while effective in strengthening bank balance sheets, also had significant impacts on MMFs in two ways. Firstly, banks' reductions in non-​operating cash deposits drove investors to seek alternatives for short term liquidity. Secondly, banks' reallocation of balance sheet reduced their ability to make markets and facilitate liquidity in the secondary markets. In normal market conditions, this impact is not problematic, since MMFs typically hold high levels of liquidity given the 30% WLA minimum requirement and short average duration limits. [​T]​he need to sell to meet redemptions from investors is generally very limited in normal times due to the substantial liquidity positions held by funds. During the pandemic when the demand for liquidity rose, MMFs sought to sell non-​WLA holdings in order to maintain the required 30% WLA."

They comment, "We do not agree with ESMA'​s findings regarding the role of Credit Rating Authorities (​CRAs) as a vulnerability.... The investor redemptions during the crisis impacted both LVNAV funds and Euro Standard VNAV funds. Unlike LVNAV funds, Euro Standard VNAV funds are predominately not AAA rated, which means they can take incremental risks to offer a higher yield, which their investors seek. By contrast, AAA MMF investors seek to preserve capital and access to liquidity, with yield typically being a secondary consideration. We believe AAA MMF investors view the ratings as an additional element of assurance and guidelines to support their internal decision-​making process. CRAs provide value to investors by being independent to the fund sponsor and serve as a secondary check on the fund health and portfolio management."

The letter continues, "JPMAM investors generally view the AAA ratings as a prerequisite, often required as part of their internal investment policy guidelines or investment policy statement. The AAA ratings criteria reinforce and often supplement the already conservative regulatory requirements and also require independent review of MMF portfolios and the portfolio management team by the CRAs, which investors find valuable. The challenge in this crisis was not creditworthiness, but rather market liquidity and we did not experience increased redemption activity due to Fitch revising its sector outlook rating for LVNAV MMFs to '​negative' from '​stable' on 24 March 2020 which was extended on 08 April 2020 to encompass all European non-​government MMFs. In fact, some aspects of the AAA ratings criteria such as the 90 day limit on Weighted Average Life (​WAL) for credit funds, likely helped to improve fund liquidity."

It says, "JPMAM supports a regulatory review to ensure that regulations are fit for purpose, and supports revisions designed to enhance the resilience of MMFs and short term markets. Few of the proposed policy options outlined would be effective in achieving these goals. MMFR was well designed to enhance transparency and increase resiliency with respect to idiosyncratic risks. However, the events of the COVID-​19 crisis were market-​wide liquidity events; it would be challenging for any regulation to provide complete protection against a system-​wide event such as the COVID-​19 crisis. Moreover, it should be noted that despite experiencing unusual stresses, and receiving only very limited benefit from various asset purchase programs (​US and EMEA based), LVNAV MMFs neither broke their collars nor imposed liquidity fees or redemption gates."

JPMAM adds, "As a preliminary matter, we observe that from an investor'​s perspective, fees are a more tolerable intervention than gates. By contrast, gates deny clients access to their cash, which is highly problematic when a client has cash flow demands. Thus, it is worth considering an approach to fees as a remediation tool separate from, and to be used earlier than, gates. Importantly, we believe the existence of such a tool could be useful in educating clients away from viewing the 30% WLA as a bright line."

Finally, they write, "We believe, there is an opportunity to incorporate a framework similar to that used for swing pricing, to make fees more dynamic and reflective of the true cost of liquidity to those demanding it. Such an approach is likely to be more palatable to investors than a static percentage fee, imposed at the Board'​s discretion. And, while swing pricing as currently used by mutual funds is operationally infeasible and conceptually problematic for MMFs, MMFs have already built an operational framework for the implementation of fees."

The next comment tells us, "HSBC Asset Management is HSBC'​s core investment business dedicated to managing assets for institutions and individuals worldwide, with USD612.​4 billion in total assets under management. As part of the HSBC group, we have local liquidity expertise across both core and emerging markets, with Liquidity assets accounting for USD 133.​0 billion (​or 21.​7% of HSBC Asset Management’​s total assets under management). We have more than 25 year'​s experience in management money market assets, and operate global and local funds across 10 currencies with investment professionals located around the world. This includes funds domiciled and regulated in Europe, the Americas and Asia. We operate LVNAV (​in Europe), CNAV and VNAV funds, in both credit and public debt strategies."

They explain, "HSBC Management treats Liquidity management as a separate discipline and has allocated dedicated resources accordingly. There are teams of portfolio managers, credit analysts, risk managers and client service teams focused on our Liquidity business. This focus, and deep experience managing a wider range of fund types, across a number of different markets, means we are well positioned to understand the needs of our investors and the markets in which we operate."

The third letter says, "Invesco Ltd. ... is an independent and diversified investment management firm managing USD 1.​50tn in assets on behalf of clients worldwide as at 31 May 20211. We have specialised investment teams managing investments across a comprehensive range of asset classes, investment styles and geographies and our 8,​000+ employees globally allow us to focus on client needs locally, with an on-​the-​ground presence in 25 countries, including a significant presence in the European Union (​EU). Invesco manages money market funds (​MMFs) and liquidity portfolios on behalf of clients across the globe. In the EU, we manage three Ireland-​domiciled MMFs, including EUR, GBP and USD portfolios, with total assets under management (​AuM) of USD 9.​82bn at 29 June 20212. Our client base for these funds spans Europe (​including the UK) and Singapore."

They also tell ESMA, "It is important to note that, while it is the case that MMFs, like other market participants and investors, faced difficulties as a result of the Covid-​19-​related March/​April 2020 liquidity event, it is also true that, despite underlying market liquidity issues, MMFs met investor needs throughout the period. No MMF had to suspend dealings, use redemption gates, apply liquidity fees or utilise any other liquidity management tools affecting investors' ability to redeem. Moreover, we note that no CNAV or LVNAV MMF breached their 20bps collar."

Invesco adds, "We welcome ESMA'​s consultation on the forthcoming European Commission-​led review of the EU MMFR, and appreciate the opportunity to provide comment on the various reform options discussed in the consultation. Of course, while we acknowledge the need to focus on specific provisions in the EU MMFR as part of the review, we welcome ESMA'​s consideration of '​broader impacts on the stability and functioning of short-​term funding markets.' This consideration should be included as part of policymakers' broader work on the market-​wide issues experienced during the Covid-​19-​related March/​April 2020 liquidity event. It is important to restate this as, while policymakers may focus attention on the specific provisions of the EU MMFR as part of the review, they should not lose sight of the fact that market-​wide issues require market-​wide solutions. The review of the EU MMFR should not, therefore, be viewed in silo or as an answer to all of the issues faced in the market last year."

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As we mentioned earlier this month, over 30 comment letters have been posted in response to the European Securities and Markets Authority'​s (​ESMA'​s) "Consultation on EU Money Market Fund Regulation - Legislative Review." Today, we excerpt from letters from French fund association AFG; ALFI, the Association of the Luxembourg Fund Industry; and German association BVI. The AFG writes, "Money markets are key short-​term financing markets and money market funds are major investment vehicles in France. At the end of December 2020, the net assets of French MMFs amounted to €​371,​5 bn. They are all managed as VNAV (​Variable NAV) funds, and they make the bulk of Euro-​denominated MMFs throughout the EU. These MMFs are thus financing European issuers in the sole EU currency. As of end of December 2020, 44% of the total € 1.​4 trillion of MMFs domiciliated in Europe were Euro-​denominated MMFs."

They explain, "As two introductory comments relating to their main conclusion of the COVID-​19 crisis episode regarding French VNAVs, AFG'​s members would like to state that: 1 - Unlike the 2008 episode, no issue is to be reported linked to the composition of the portfolio, especially in terms of the quality of assets; funds are sane and resilient in their construction and composition. MMFR increased funds resilience and proved to be efficient. 2 - Exogenous shock to money markets: As the sanitary Covid-​19 crisis took in March a global dimension and impacted both real economy and financial markets, money markets underwent a sudden series of brutal imbalances where: many corporates withdrew their money (​from credit lines, deposits and MMFs) to face a brutal drop in their revenues due to the economic quasi shutdown trigged by the pandemic; in consequence, MMFs stopped purchasing MMIs and requested bids from the banking system to buy some of their holdings in order to rebuild their cash buffers."

The letter states, "AFG would like to share some fundamental elements of analysis before diving into the MMFR related questions and options as proposed in this consultation paper. Freeze of the Underlying market: MMFs are dependent on the well-​functioning of the underlying market (​money markets) to operate. They are an important player of this market, but not the only one. Many other actors are part of this ecosystem and are investing in money market instruments CDs, CPs, short term govies, short term credit bonds, reverse repos, etc. ... we cannot assume that MMF can keep providing liquidity whilst the functioning of the underlying market is totally impaired."

It continues, "The process of market liquidity evaporating concerned a large spectrum of assets, at some time even '​the highest quality government assets' as explained by the Bank of England: '​The sharp pickup in asset price volatility, as markets struggled to process the news about the onset of the virus, increased margin calls -- forcing funds to unwind some of their basis trades, selling USTs to generate cash. Initially these trades were conducted quietly. But as time went on, their speed and size -- running to hundreds of billions of dollars -- began to overwhelm dealers' intermediation capacity, which was itself shrinking as the result of rising volatility and the operational challenges of remote working.'"

The AFG suggests a "Precise calendar of market freeze and fund net outflows, and comments, "​before any conclusion is drawn, a subtle analysis should be done by type of money market funds (​LVNAV, VNAV) but also other types of funds (​including ETFs) and by region ... regarding the net outflows and the timing at which it took place, in parallel to the market freeze. Our view is that French VNAV funds did not experience anticipated outflows, but only redemptions linked to the need for cash due to the pandemic and the urgent need for financing working capital needs. These were due to massive drops in revenues, due themselves to a generalized lockdown especially for corporates which was very specific in that crisis."

They also discuss the "Need for cash," and tell us, "French VNAV MMFs are subscribed mainly by institutional investors. At quarter end for instance, their outflows are generally important and are dealt in anticipation in a business-​as-​usual manner by asset managers. During the crisis, the need for cash expressed by some of them, especially corporates, amounted to high levels of redemptions from MMFs. MMFs are liquid funds that were used in priority compared with other types of assets, even if the redemption was high almost in all asset classes. Other European countries, where MMFs were not part of the funds' spectrum, suffered outflows from other types of funds. If the general COVID 19 crisis (​which is a sanitary crisis and in no way inherent to money markets) would have continued, the need for cash would have been expressed also by redemptions in other asset classes. We would thus like to highlight that it should be recognized that it is also '​normal' to expect that MMFs can experience earlier redemptions compared to other asset classes and where a major shock arises, it is expected that risks are re-​correlating and all markets suffer alike."

The AFG adds, "This is also why, while acknowledging the important economic role played by MMFs, regulators' reactions should not over-​emphasize MMFs' case in this global crisis. Like the French AMF explained: '​The re-​correlation of these asset prices in the event of a major shock illustrates the limits of the benefits of diversification. Central banks' intervention was ultimately able to restore the functioning of the market for money market instruments, where both issuance and trading were able to resume at the same time. Since French money market funds have in the meantime seen the return of net inflows, their investment in the most liquid and short-​term assets has substantially increased as a precautionary measure."

The second letter states, "The Association of the Luxembourg Fund Industry (​ALFI) represents the face and voice of the Luxembourg asset management and investment fund community.... Created in 1988, the Association today represents over 1,​500 Luxembourg domiciled investment funds, asset management companies and a wide range of business that serve the sector. These include depositary banks, fund administrators, transfer agents, distributors, legal firms, consultants, tax advisory firms, auditors and accountants, specialised IT and communication companies. Luxembourg is the largest fund domicile in Europe and a worldwide leader in cross-​border distribution of funds. Luxembourg domiciled investment funds are distributed in more than 70 countries around the world."

It tells us, "At the beginning of the COVID-​19 pandemic, the outlook of a potential economic crisis triggered significant risk aversion and the demand for cash started to increase.... As a result, market liquidity came under pressure and fell sharply, not only for riskier assets, but briefly also in high-​quality markets, such as the US Treasury and money markets, as both financial and non-​financial sectors demanded cash.... European investment funds experienced outflows for different fund types, including, but not limited to, Money Market Funds (​MMFs)."

ALFI writes, "In this context also some segments of the EU short-​term MMF industry faced liquidity challenges, in particular LVNAV MMFs while CNAVs recorded high inflows and VNAVs overall limited outflows although individual VNAV funds may have been subject to large outflows.... In general, outflows were amplified by seasonal, quarter-​end factors in view of non-​financial corporate investor redemptions in the second half of March, whereas those of other clients segments remained more stable.... In this context, we would like to point out the market impact of quarter end balance sheet pressures on liquidity. As banks reduce their balance sheets approaching reporting period ends, this directly impacts both the amount of liquidity a MMF can hold in the fund, and also how liquid the market is. Redemption pressure timed ahead of a quarter end was in our view a material factor in the lack of liquidity in markets."

They also say, "Among the outflows, the ones from both euro and USD-​denominated funds were significant, especially USD-​denominated LVNAV funds, while preliminary USD-​dominated CNAV funds received net inflows.... This could also be observed for Luxembourg MMFs.... In the USA, similar developments took place with a large rebalancing between Prime MMFs and Treas-​ury & Government MMFs.... Even though there was neither a direct support of European MMFs by the US Federal Reserve via its programmes nor a broad support by the ECB via the PEPP, their quick reaction helped to maintain investor confidence in the market and thereby limited the impact by investor behaviour. However, the intervention may have led to the impression that MMFs were not resilient enough. In this context, we do not agree with Paragraph 22 which states markets are not very liquid even in normal times. In normal market conditions there is sufficient liquidity."

Finally, another comment says, "BVI represents the interests of the German fund industry at national and international level. The association promotes sensible regulation of the fund business as well as fair competition vis-à-​vis policy makers and regulators. Asset Managers act as trustees in the sole interest of the investor and are subject to strict regulation. Funds match funding investors and the capital demands of companies and governments, thus fulfilling an important macro-​economic function. BVI'​s 116 members manage assets some EUR 4 trillion for retail investors, insurance companies, pension and retirement schemes, banks, churches and foundations. With a share of 27%, Germany represents the largest fund market in the EU."

BVI adds, "In our opinion, there is no compelling need for action to change the MMFR. With respect to the MMFs managed by our members, there were neither significant redemptions nor a significant deterioration in the liquidity of money market instruments. However, the money markets need reform, especially the regulation of intermediaries (​banks, brokers, platforms) and the money market instruments should be checked, since the intermediaries -- from our point of view -- did not fulfil their role in market making and providing liquidity during the COVID-​19 March crisis."

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A press release entitled, "Wells Fargo Asset Management to Become Allspring Global Investments; Initiates Leadership Transition," tells us, "GTCR LLC and Reverence Capital Partners, L.​P. ... announced that upon closing of their acquisition of Wells Fargo Asset Management (​WFAM), the newly independent company will be rebranded as Allspring Global Investments. The new name Allspring Global Investments reflects the newly independent firm'​s rich history in investment leadership and its commitment to renewal, growth, and meaningful client outcomes. As part of the transition, veteran industry executive Joseph A. Sullivan will become Chief Executive Officer, in addition to his previously announced role as Executive Chairman. Mr. Sullivan will succeed Nico Marais, WFAM'​s current CEO, who will retire upon closing of the transaction and continue to serve Allspring as a senior advisor."

It explains, "Mr. Sullivan comes to Allspring with more than 40 years of industry experience, previously serving as Chairman and Chief Executive Officer of Legg Mason, Inc. from 2012 until its acquisition by Franklin Templeton in 2020.... Before joining Legg Mason, he served on the Board of Directors of Stifel Financial and as Executive Vice President and Head of Fixed Income Capital Markets for Stifel Nicolaus from December 2005."

Sullivan comments, "I am honored and energized to have the opportunity to lead Allspring, as we enter a new era for the firm.... In spending time with Nico and the organization over the past few months, I have been incredibly impressed by the depth of investment expertise and quality of our people and leadership. Our new name truly embodies a renewed corporate culture and commitment to continue to invest thoughtfully and partner with our clients to navigate the future."

Collin Roche, Managing Director of GTCR, says, "Today'​s announcements mark key milestones in the transformation of WFAM into a focused, independent, global asset management firm serving private wealth and institutional clients around the world. We are excited about the possibilities of our new name, Allspring Global Investments, and that Joe Sullivan will become Allspring'​s CEO. Joe is recognized as one of the asset management industry'​s most respected leaders, and he will be exceptionally valuable as we execute on our growth strategy. We would like to thank Nico Marais for his strong leadership of WFAM, and we are pleased that he will continue to serve as a senior advisor."

Marais states, "This is a tremendously exciting time for the company, and as we make this transition, it is the right time for me personally and professionally to step down from active leadership and assume a new advisory role. I have cherished my time as CEO of WFAM and am very appreciative of the passion and professionalism of our people. We have accomplished a great deal, including the transition to independent ownership. I look forward to working with Joe and the team, and I am confident about what the future holds for the organization."

Milton Berlinski, Co-​Founder and Managing Partner of Reverence Capital, comments, "Today'​s leadership and name announcements give us even stronger conviction that the partnership between WFAM, GTCR and Reverence puts us in a powerful position to execute on our strategic vision for Allspring. We are pleased to have a leader of Joe'​s stature to take us forward as a newly independent company, and we are very grateful to Nico for his strong continued partnership during this time."

The release adds, "On February 23, 2021, GTCR LLC and Reverence Capital Partners, L.​P. announced that they had agreed to acquire WFAM from Wells Fargo & Company (​NYSE: WFC). The name change to Allspring Global Investments is expected to go into effect upon the closing date of the transaction, which is anticipated to occur in the second half of 2021, subject to customary closing conditions. Additional details related to the new independent company and its brand identity will be shared upon closing of the transaction."

See our Feb. 25 News, "Wells Fargo Sells Asset Management Unit; Morgan Stanley Gets Social," and the original press release, "Wells Fargo Enters Agreement with GTCR and Reverence Capital Partners to Sell Wells Fargo Asset Management."

Wells Fargo Asset Management is currently the 9th largest manager of money market funds with $​200.​7 billion (​as of 6/​30/​21), according to Crane Data. Among the 27 Wells Fargo MMFs tracked, the largest include: Wells Fargo Govt MM Sel (​WFFXX, $​103.​3B); Wells Fargo Govt MM Inst (​GVIXX, $​40.​6B); Wells Fargo Trs Plus In (​PISXX, $​15.​6B); Wells Fargo 100% Treas MM Inst (​WOTXX, $​10.​8B); Wells Fargo 100% Treas MM Svc (​NWTXX, $​5.​3B); Wells Fargo Heritage Sel (​WFJXX, $​5.​2B); Wells Fargo Govt MM Adm (​WGAXX; $​4.​3B); Wells Fargo MMF Prm (​WMPXX; $​3.​3B); Wells Fargo Trs Plus Sel (​WTLXX; $​3.​6B); and, Wells Fargo Govt MM Svc (​NWGXX, $​2.​0B).

For more on money fund manager transactions, see these Crane Data News pieces: "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations" (​2/​20/​20); "Sweeps Big Part of Morgan Stanley, E*​Trade Purchase; Rates Flat Again" (​2/​25/​20); "Oppenheimer Funds Now Invesco Oppenheimer; Dreyfus Keeping Name" (​6/​3/​19); Invesco Buying OppenheimerFunds; DWS ESG, Northern'​s RAVI Advertise" (​10/​22/​18); "BlackRock Taking Over BofA MMFs in One of Biggest Acquisitions Ever" (​11/​3/​15); and "Merged BlackRock, BGI Form World'​s 3rd Largest Money Fund Manager" (​12/​2/​09).

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With less than 2 months to go, we'​re ramping up preparations for our Money Fund Symposium, which will take place Sept. 21-​23, 2021, at The Loews Philadelphia. While we'​re watching the bump up in "​delta" variant coronavirus cases closely, we don'​t think this will be a threat to the event or attendees and we expect the show to go on. We believe the vast majority of our attendees are vaccinated, and we'​ll adhere to whatever health policies the hotel and city have in place at the time. (​The hotel is currently requiring masks in the lobby, but not in the session and exhibit rooms. There are no restrictions on size or events in Pennsylvania currently.) We review the latest agenda and details below, and of course we'​ll adjust plans if necessary. (​We'​ll also give refunds or credits for cancels at any time.)

Crane'​s Money Fund Symposium, the largest gathering of money market fund managers and cash investors in the world, is scheduled to take place September 21-​23, 2021 at The Loews Hotel, in Philadelphia, Pa. The latest agenda is available and registrations are being taken. (​We'​ll be tweaking the agenda in coming weeks.) Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators.

Our Money Fund Symposium Agenda kicks off on Tuesday, September 21, with a keynote on "Adapting to Regulations, Tech & ESG" from Tom Callahan of BlackRock and Deborah Cunningham of Federated Hermes. The rest of the Day 1 agenda includes: "Treasury Issuance & Repo Update," with Mark Cabana of Bank of America Securities, Joseph Abate of Barclays and Tom Katzenbach of the U.​S. Treasury; a "Regulatory Scenarios & Fed Support Review" with Stephen Cohen of Dechert and Ken Anadu of Federal Reserve Bank of Boston; and, a "Major Money Fund Issues 2021" panel featuring, Tracy Hopkins of Dreyfus/​BNY Mellon Cash Investment Strategies, Jeff Weaver of Wells Fargo Asset Management and Rob Sabatino of UBS Asset Management. (​The evening'​s reception is sponsored by BofA.)

Day 2 of Money Fund Symposium 2021 begins with "The State of the Money Fund Industry," which features Peter Crane of Crane Data and Michael Morin of Fidelity Investments, followed by a "Senior Portfolio Manager Perspectives" panel, including Pia McCusker of SSGA, Nafis Smith of Vanguard, and Peter Yi of Northern Trust A.​M. Next up is "Government & Treasury Money Fund Issues," with Adam Ackermann of J.​P. Morgan A.​M. and Geoff Gibbs of DWS. The morning concludes with a "Muni & Tax Exempt Money Fund Update," featuring Colleen Meehan of Dreyfus, John Vetter of Fidelity and Sean Saroya of J.​P. Morgan Securities.

The Afternoon of Day 2 (​after a Dreyfus-​sponsored lunch) features the segments: "Dealer'​s Choice: Supply, New Securities & CP" with Robe Crowe of Citi Global Markets, John Kodweis of J.​P. Morgan and Stewart Cutler of Barclays; "Ratings Focus: Governance, Global & LGIPs" with Robert Callagy of Moody'​s Investors Service, Greg Fayvilevich of Fitch Ratings, and Michael Masih of S&​P Global Ratings; "Ultra-​Short, ETFs & Alt-​Cash Update," with Laurie Brignac of Invesco and Teresa Ho of JPM. The day'​s wrap-​up presentation is "European, ESG & Corporate Issues" involving Jonathan Curry of HSBC Global A.​M. and Tom Hunt of AFP. (​The Day 2 reception is sponsored by Barclays.)

The third day of the Symposium features the sessions: "Strategists Speak '​21: Fed & Rates, Repo & SOFR" with Priya Misra of TD Securities, Vanessa McMichael of Wells Fargo Securities and Alex Roever of J.​P. Morgan Securities; "Brokerage Sweeps, Bank Deposits & Fin-​Tech," with Chris Melin of Ameriprise Financial and Kevin Bannerton of Total Bank Solutions. The day concludes with an "FICC Repo & Agency Roundtable," featuring Robert Dolecki of FHLBanks Office of Finance, Travis Keltner of State Street and Matthew Peabody from BNY Mellon Markets; and a brief session on "Money Fund Statistics & Disclosures" run by Peter Crane.

Visit the MF Symposium website at www.​moneyfundsymposium.​com) for more details. Registration is $​750, and discounted hotel reservations are available. Full refunds will be given for any cancels for any reason, and thanks to our sponsors for their support ... and patience! We hope you'​ll join us in Philadelphia in September! (​The show will be recorded for those that can'​t make it.)

We'​d like to encourage attendees, speakers and sponsors not to wait for the last minute to register and make hotel reservations, but we of course understand if you need to wait for travel restrictions to ease. Note that the agenda is still being finalized, so watch for tweaks in coming weeks. E-​mail us at info@​cranedata.​com to request the full brochure.

Also, register for our virtual (​and free) "European Money Fund Symposium, which is scheduled for Oct. 21, 2021, from `​9:​30am-​12:​00pm Eastern. (We cancelled our live European MFS in Paris, and have rescheduled this live event to Sept. 27-​28, 2022.) Our virtual EMFS session will include a "Welcome to European MF Symposium" from Peter Crane; a "European MMF Update: Ireland, France, UK" with Vanessa Robert of Moody'​s, Alastair Sewell of Fitch Ratings and Andrew Paranthoiene of S&​P Global Ratings; "Regulatory ESG & Ultra-​Short Issues" with Patrick Rooney of Irish Funds, James Vincent of Goldman Sachs Asset Mgmt. and Rob Sabatino of UBS Asset Management; and "Senior Portfolio Manager Perspectives," with Deborah Cunningham of Federated Hermes, Joe McConnell of J.​P. Morgan Asset Mgmt and Paul Mueller of Invesco.

Also, mark your calendars for our next Money Fund University which is scheduled for Jan. 20-​21, 2022, in Boston, Mass and our next Bond Fund Symposium, which is scheduled for Mar. 28-​29, 2022 in Newport Beach, California. Let us know if you'​d like more details on any of our events, and we hope to see you in Philadelphia in September or in Boston or Newport Beach in 2022!

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The Bank of England recently published, "Financial Stability Report - July 2021," which "​view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it." Under section "3.​2.​1: Limiting the demand for liquidity rising unduly in a stress period," they write, "​The March 2020 market disruption highlighted how a '​flight to safety' in financial markets can lead to an aggregate increase in demand for liquidity and become an abrupt and extreme '​dash for cash'. Vulnerabilities within the financial system can exacerbate this demand for liquidity, including: the mismatch between the liquidity of assets held in open-​ended funds -- including MMFs -- and the redemption terms offered by those funds; the forced unwinding of leveraged positions by non-​bank financial institutions; and the management of liquidity demands following increases in derivative margin calls."

A section on "Examining and addressing the liquidity mismatch in funds," tells us, "There is a need to examine and address the mismatch between the liquidity of assets held in open-​ended funds -- including MMFs -- and the redemption terms they offer. In December 2019, the FPC set out three key principles for fund design that, in its view, would deliver greater consistency between funds' redemption terms and their underlying assets: Liquidity classification: The liquidity of funds' assets should be assessed either as the price discount needed for a quick sale of a representative sample of those assets or the time period needed for a sale to avoid a material price discount. Pricing adjustments: Redeeming investors should receive a price for their units in the fund that reflects the discount needed to sell the required portion of a fund'​s assets in the specified redemption notice period. [​and] Notice periods: Redemption notice periods should reflect the time needed to sell the required portion of a fund'​s assets without discounts beyond those captured in the price received by redeeming investors."

The report explains, "For open-​ended funds, the FPC has judged that the mismatch between the redemption terms and the liquidity of some funds' assets means there is an incentive for investors to redeem ahead of others, particularly in a stress. This first-​mover advantage has the potential to become a systemic risk by creating run dynamics. The Bank and FCA have been conducting a joint review into vulnerabilities associated with the liquidity mismatch in open-​ended funds, which included a survey of UK-​authorised open-​ended funds and their liquidity management practices. The FPC welcomes the conclusions of that review."

It continues, "​MMFs are a particular form of open-​ended fund. Investors tend to use MMFs as part of their cash management strategies because MMFs offer '​same-​day' liquidity -- meaning investors can generally expect to redeem their full principal at any time. Although many investors regard their MMF holdings as cash-​like assets and generally redeemable on demand, they are subject to the risk of losses because MMFs may not be able to make good on this expectation in all circumstances. The '​dash for cash' episode highlighted structural vulnerabilities in MMFs."

The Bank of England'​s Financial Policy Committee says, "In March 2020, prime MMFs -- those that invest largely in non-​government assets -- faced significant outflows and found their ability to generate additional liquidity constrained, exposing the risk of a run on these funds (​see 'Assessing the resilience of market-​based finance'). Such a problem in one fund risks contagion to other funds, and thus could lead to a highly destabilising run on MMFs."

They state, "Suspensions of redemptions by MMFs could have had potentially severe implications for UK financial stability and the economy, due to their interlinkages with other financial institutions as well as with corporates and local authorities. These consequences were avoided by central bank interventions that alleviated demand for liquidity across the financial system."

The report also tells us, "To address vulnerabilities in the global money market fund sector, a robust and coherent package of international reforms needs to be developed. One of the most important vulnerabilities to address is the liquidity mismatch inherent in MMFs that hold assets which are not liquid in stress. Potential ways to address this range from -- at one extreme -- increasing the range of stress scenarios under which MMF assets remain cash-​like (​such as limiting funds' asset holdings to government instruments only), to -- at the other extreme -- recognising that certain MMF assets are not cash-​like in stress (​by, for example, requiring notice periods for redemption)."

Finally, it adds, "Within this range, it is possible that a set of measures could be used to reduce risks to a sufficiently low level and make MMFs resilient for the purpose for which they are used. In addition, any reform package should remove the adverse incentives introduced by liquidity thresholds related to the use of suspensions, gates and redemption fees (​see Bailey (​2021)). Recognising the global nature of financial markets, any work to assess and ensure the resilience of MMFs should continue to be co-​ordinated internationally. The FSB has published a consultation paper which sets out policy proposals to enhance MMF resilience. The FPC welcomes this consultation paper."

In other news, earlier this month Federated Hermes published, "Powell calm despite inflation storm." Federated'​s Sue Hill comments, "​The inflation debate rages on. Price pressures were on full display this week with the release of CPI and PPI for the month of June. What wasn'​t so clear, however, was whether they will meet the Federal Reserve'​s definition of inflation. We should be careful not to attach too much significance to the year-​over-​year measures of price data because they still fall under base effects from sharp price declines 12 months ago. But the month-​to-​month data is telling. The 0.​9% change in CPI was well above expectations, powered by an astounding 10.​5% rise in used car prices and additional pressures in airfares, lodging and restaurant meals."

Hill writes, "Chair Powell seemed pretty unbothered by it all during his appearances on Capitol Hill this week. He acknowledged the increases had exceeded the Fed'​s own expectations, but still believes that much of the pressure will subside. We even got some sense of how patient the Fed could be. He defined inflation as, '​Year after year after year, prices go up', and left the impression that it could take six months before the Fed would conclude that what it suspects is transitory might actually be more structural in nature."

She asks, "Is this wait-​and-​see approach wrong? Is it risking 70s style inflation? I don'​t think so. While there surely will be more structural inflation in some sectors when the dust all settles, we may be seeing the peak in prices for some areas that have been supply constrained. And, of course, the Fed also has a full employment mandate. While how the Fed measures that in the post-​pandemic world is not entirely known (​perhaps even by the policy-​setting Federal Open Market Committee), it'​s not at the level at which we are today."

Hill concludes, "​If substantial progress is made toward full employment over the next six months as supplemental unemployment benefits end and schools return to in person attendance, the Fed will be willing to start to remove policy accommodation even if the verdict on the permanence of inflation is not yet in. I think many officials are no longer comfortable with the current pace of asset purchases as they have not been needed for the purpose of supporting market functioning for quite some time. So in the fourth quarter, we expect them to outline their taper plans, which should include both Treasuries and agency mortgage-​backed securities."

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A new posting entitled, "How Do Prime MMFs Manage Their Liquidity Buffers?" written by SEC staffers Viktoria Baklanova, Isaac Kuznits and Trevor Tatum, tells us, "Based on data filed by money market funds (​MMFs) on Form N-​MFP, this article offers insights about the composition of prime MMFs' liquidity buffers. The analysis shows that prime MMFs mainly rely on government securities and repos to meet their daily and weekly liquidity thresholds. Prime MMFs' investments in government securities increased during the pandemic, reaching an all-​time high of 38% of their portfolios in August 2020." (Note: Thanks to those who attended our Money Fund Wisdom Product Training webinar Tuesday. For those that missed it, you can see the replay here.)

They explain, "Many investors use MMFs to manage their liquidity needs given that MMFs invest in short-​term, high- quality debt securities that, under normal market conditions, exhibit limited price volatility. MMFs typically provide somewhat better returns than holding assets in cash. Institutional investors, in particular, make significant subscription and redemption requests on a frequent basis, especially during stressed market conditions. To meet investor needs for liquidity, MMFs are expected to hold a sufficient amount of assets that can be quickly converted to cash. Since 2010, SEC rules have included minimum liquidity requirements for MMFs, including a minimum of 10% of investments in daily liquid assets (​DLA) and a minimum of 30% of investments in weekly liquid assets (​WLA). MMFs report the size of their DLA and WLA to the public daily on their websites. MMFs also report these metrics to the SEC monthly on Form N-​MFP. Using these data, this article examines the composition of prime MMFs' daily and weekly liquidity buffers from October 2016 through May 2021, a period that includes the heightened market volatility in March 2020 and the economic uncertainty that followed."

The SEC piece states, "If an MMF'​s portfolio falls below the 10% DLA or 30% WLA threshold, it may not acquire any assets other than DLA or WLA until these thresholds are met. A prime MMF may impose liquidity fees or temporarily suspend redemptions if the fund'​s WLA declines below 30% of its total assets. To date, no MMF has used these tools. On average, prime MMFs have historically maintained DLA and WLA well above the regulatory minimums."

It continues, "DLA are expected to be readily available to meet investor redemptions and generally include cash and securities that mature within one business day (​or have a daily demand feature). In addition, MMF holdings of Treasury securities qualify as having daily liquidity. WLA include cash, securities that mature within five business days (​or that funds can redeem for cash within one week), Treasury securities, and certain government agency securities with remaining maturities under 60 days."

The piece says, "​Prime MMFs can invest in a broad range of short-​term, high quality fixed-​income instruments such as U.​S. Treasury bills, federal agency notes, bank obligations such as certificates of deposit (​CD) or time deposits (​TD), commercial paper (​CP), repos, and obligations of states, cities, or other types of municipal agencies. Because many of these assets do not qualify as daily or weekly liquid assets, unexpected and rapid shareholder redemptions from a fund may cause DLA or WLA to fall below their regulatory minimums. For example, at the onset of the pandemic in March 2020, investors withdrew $​125 billion from prime MMFs causing a general reduction of WLA, which approached the 30% threshold for some funds and fell below 30% in one case. However, according to Form N-​MFP filings, no prime MMF reported DLA declining below the 10% threshold in March 2020, suggesting that these funds maintained available liquidity to meet daily redemptions up to 10% of the funds' total assets."

It adds, "The data show that nearly all prime MMF investments in repos have historically been used to meet DLA and WLA thresholds.... In addition, most prime MMF investments in government securities are used as WLA.... In contrast, only a small portion of total CP investments by prime MMFs are used as DLA (​5% of the total CP investments, on average) and WLA (​11% of the total CP investments, on average) (​Figure 10). Lastly, only 18% of prime MMF investments in banks' CD and TD, on average, are used as DLA and 22% of these investments, on average, are used as WLA."

In other news, The Wall Street Journal writes, "Assets in Ant Group'​s Flagship Money-​Market Fund Tumble to 2016 Levels." The article explains, "Assets under management at Ant Group Co.'​s highly popular money-​market fund fell to their lowest level in years after pressure from China'​s regulators forced the company to sit out an industrywide boom. Data for the second quarter, released Wednesday, showed that the Tianhong Yu'​e Bao money-​market fund had the equivalent of $​120.​4 billion of assets at the end of June, down 20% percent from three months earlier to a level last seen in late 2016. Last autumn, before Chinese regulators forced Ant to call off its blockbuster initial public offering, the giant fund had more than $​180 billion in assets under management."

It tells us, "At its peak in early 2018, the fund managed assets totaling 1.​69 trillion yuan, the equivalent of $​260.​6 billion at present exchange rates, and was the largest such vehicle in the world. It used to produce returns far in excess of Chinese bank deposit rates by buying bank certificates of deposit and other higher-​yielding products. Its rapid growth and large size drew regulatory scrutiny at the time, leading Ant to impose investment caps and open up its Yu'​e Bao money-​market investing platform to rival products. The caps were subsequently scrapped after the giant fund started shrinking and losing investors to other funds."

The Journal states, "More recently, the original Tianhong Yu'​e Bao fund has come under fresh pressure. In April this year, as part of a five-​point overhaul of Ant, Chinese financial regulators ordered Ant to reduce the flagship fund’​s assets under management further. Officials said the fund, which serves hundreds of millions of small investors, would need to shrink to avoid posing a risk to the financial system, though they didn'​t specify an appropriate size for it, people familiar with the matter said. In response to the April order, the fund has refrained from chasing better yields or actively promoting itself to investors, the people said."

They write, "Tianhong didn'​t go into detail about why the fund'​s assets shrank significantly. The money-​market fund'​s seven-​day annualized yield was 2.​093% at the end of June, slightly lower than that of some rival funds sold on the same platform. For the second quarter, Tianhong reported a net return rate of 0.​5255% and 4.​5 billion yuan in profit after fees."

Finally, the WSJ quotes Aidan Shevlin, head of International global liquidity portfolio fund management at J.​P. Morgan Asset Management, "The bigger a fund is, the more troublesome it could potentially be if it runs into problems." He said `​China'​s biggest funds tied to e-​wallets were also very widely owned. "​So if anything were to happen, that would be very concerning." (​For more on Chinese money funds, see our June 24 News, "Asian Money Fund Symposium Recap: JPMAM'​s Shevlin on Chinese MMFs," and our June 18 News, "Worldwide MF Assets Jump in Q1'​21 Led by US, China; Europe Sees Drop.")

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Stablecoin purveyor Tether is again in the news as regulators scrutinize the sector and make uncomfortable comparisons to money market funds. The Wall Street Journal wrote on Saturday, "Risks of Crypto Stablecoins Attract Attention of Yellen, Fed and SEC." The piece explains, "Stablecoins, digital currencies pegged to national currencies like the U.​S. dollar, are increasingly seen as a potential risk not just to crypto markets, but to the capital markets as well. Treasury Secretary Janet Yellen is scheduled Monday to hold a meeting of the President'​s Working Group on Financial Markets to discuss stablecoins." (​See the Treasury'​s "Readout of the Meeting of the President’​s Working Group on Financial Markets to Discuss Stablecoins," see our July 13 Link of the Day, "Fitch Looks at Tether Risks," and our June 2 LOTD, "Bloomberg Opinion Hits Tether CP.")

The Journal tells us, "Stablecoins are a key source of liquidity for cryptocurrency exchanges, their largest users, which need to process trades 24 hours a day. In the derivatives and decentralized finance markets, stablecoins are used by traders and speculators as collateral, and many contracts pay out in stablecoins. Stablecoins have exploded over the past year as cryptocurrency trading has taken off. The value of the three largest stablecoins -- tether, USD Coin and Binance USD -- is about $​100 billion, up from about $​11 billion a year ago."

They quote Boston Federal Reserve President Eric Rosengren June speech, "There are many reasons to think that stablecoins -- at least, many of the stablecoins -- are not actually particularly stable." The article says, "​In December, the president'​s working group released a statement on the regulatory issues concerning stablecoins. `​Among other things, it suggested that best practices would include a 1:​1 reserve ratio and said issuers should hold '​high-​quality, U.​S.-​dollar denominated assets' and hold them at U.​S.-​regulated entities."

The WSJ adds, "Neither Circle nor Tether provides a detailed breakdown of where their reserves are invested and the risks users of the tokens are taking. This lack of information has alarmed central bankers and lawmakers in the U.​S. and overseas.... What the companies have disclosed is that they have invested the reserves in corporate debt, commercial paper and other markets that are generally considered liquid, and in cash equivalents. Tether, according to a report it released earlier this year, held about half of its reserves in commercial paper -- short-​term loans used by companies to cover expenses. The credit ratings of the commercial paper and whether it came from the U.​S. or overseas couldn'​t be determined."

Finally, they write, "​Regulators don'​t have to look far for examples of what can go wrong in the world of finance. Money-​market funds came under pressure last year during the pandemic-​driven selloff and required support from the Fed. Dozens of money-​market funds needed to be propped up during the 2008-​09 financial crisis to prevent them from '​breaking the buck,' or falling under their standard of a $​1-​a-​share net asset value."

CNBC'​s "​Mad Money" and Jim Cramer also questioned the reserves of stablecoins and Tether yesterday. The show featured a segment discussing a new paper, "Taming Wildcat Stablecoins," written by Yale School of Management'​s Gary Gorton and Federal Reserve Board of Governors' Jeffery Zhang. The paper'​s Abstract says, "Cryptocurrencies are all the rage, but there is nothing new about privately produced money. The goal of private money is to be accepted at par with no questions asked. This did not occur during the Free Banking Era in the United States -- a period that most resembles the current world of stablecoins. State-​chartered banks in the Free Banking Era experienced panics, and their private monies made it very hard to transact because of fluctuating prices. That system was curtailed by the National Bank Act of 1863, which created a uniform national currency backed by U.​S. Treasury bonds. Subsequent legislation taxed the state-​chartered banks' paper currencies out of existence in favor of a single sovereign currency."

It continues, "The newest type of private money is now upon us -- in the form of stablecoins like '​Tether' and Facebook'​s '​Diem' (​formerly '​Libra'). Based on lessons learned from history, we argue that privately produced monies are not an effective medium of exchange because they are not always accepted at par and are subject to runs. We present proposals to address the systemic risks created by stablecoins, including regulating stablecoin issuers as banks and issuing a central bank digital currency."

The paper explains, "​Stablecoin issuers appear to understand that they have the same problem that all banks inherently have. What exactly is the backing for their money? If the stablecoins are not perceived as safe because coin holders have suspicions about the backing, then they may be inclined to run on the issuers. With respect to demand deposits, this problem was solved with federal deposit insurance. Stablecoin issuers try to convince holders of their coins that the coins are backed by reliable assets."

It comments, "​Other stablecoin issuers are less clear about their holdings. Tether, for instance, describes its backing assets this way: '​Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (​collectively, '​reserves'). Every Tether token is also 1-​to-​1 pegged to the dollar, so 1 USDT Token is always valued by Tether at 1 USD.' New York Attorney General Letitia James sued Bitfinex and Tether, both owned by Hong Kong-​based iFinex, asserting that 'Tether'​s claims that its virtual currency was fully backed by U.​S. dollars at all times was a lie.'"

The study tells us, "​These entities agreed to pay $​18.​5 million. In the settlement, Tether agreed to the following: '​Publication of Tether'​s Reserves: On at least a quarterly basis for a period of two (​2) years following the effective date of this Settlement Agreement, Tether will publish the categories of assets backing tether (​e.​g., cash, loans, securities, etc.), specifying the percentages of each such category, and specifying whether any such category constituting a loan or receivable or similar is to an affiliated entity, in a form substantially similar to that previously presented to the OAG.' Tether then released one page with two pie charts showing backing of 3.​87 percent cash and 2.​94 percent Treasury bills."

It also discusses past problems with money market mutual funds, explaining, "Suffice it to say, policymakers who were considering whether to regulate money market funds as banks in the 1970s did not foresee the need for future government bailouts. In this Part, we provide a historical overview of money market funds and the consequences of labeling them as securities when it was obvious that their economic content was equivalent to a demand deposit. If there were any confusion about this point, the runs on money market funds in 2008 and in March 2020 provide further evidence."

The piece adds, "Runs on money market funds can destabilize the entire short-​term credit market. When a money market fund is inundated with redemption requests in a panic, the fund may have insufficient cash to meet the redemptions. The fund may seek to raise cash by declining to roll over its maturing holdings of commercial paper or other short-​term claims, or by selling its assets in illiquid markets at fire sale prices. These actions by money market funds reduce the supply of short-​term credit in the economy, raise the price of short-​term credit, and drive down the market values of short-​term debt instruments in the financial system -- thus creating additional pressures on money market funds, other investors in the short-​term funding markets, and borrowers in these markets. This is precisely what occurred in September 2008."

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As we see more earnings reports and hear more calls from banks, brokerages and asset managers, it'​s clear that Q2'​21 will easily set a record as the most painful quarter ever for fee waivers. BNY Mellon explained in its earnings release, "​The following table presents the impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense. In 2Q21, the net impact of money market fee waivers was $​252 million, up from $​188 million in 1Q21, driven by lower short-​term interest rates and higher money market balances." (​See the earnings call transcript here. Also, please join us this afternoon for our "Money Fund Wisdom Product Training" webinar from 2-​3pm EDT.)

CFO Emily Portney comments, "​Total revenue was lower by 1% due to lower net interest revenue and higher money market fee waivers, partially offset by strong fee growth. Fee revenue grew 4%, or 10% excluding the impact of fee waivers.... Money market fee waivers, net of distribution and servicing expense were $​252 million in the quarter, up $​64 million from the prior quarter, which impacted pretax income by approximately $​40 million, sequentially. Higher waivers were driven by lower T-​Bill and repo rates as well as higher average balances.... Investment Management revenue grew 13% due to higher market values, the benefit of a weaker U.​S. dollar higher performance fees and net inflows despite a 9% negative impact few waivers."

She explains, "Although using the forward curve and assuming flat balances, we estimate fee waivers, net of distribution and servicing expense to be approximately $​225 million in the third quarter, slightly better than the $​252 million this quarter, driven by the slightly higher short-​term rate outlook. This is estimated to have a modest pre-​tax benefit of $​15 million next quarter. With regard to fees ex-​waivers, recall that we guided at year-​end for growth to be about 3%. Given the strong first half of this year, we now expect full year fees ex-​waivers to be up between 7% and 8%."

During the call'​s Q&​A, Portnoy responds, "​So you'​re right, we have been proactively managing deposits and very successfully. We'​ve been working with our clients, and you can see that in our trends ... despite the Fed continuing to pump excess liquidity into the system. Ultimately, we have managed our deposits and they'​re down 1% sequentially. This has been very much a coordinated effort with our salespeople and our clients. And in terms of looking at what'​s excess on our balance sheet, we probably think we have about $​25 billion to $​50 billion that still excess."

She continues, "But what we have been doing is looking at what is excess and actually working with our clients to move it to off-​balance sheet vehicles such as money market funds. That'​s partially why you see a 9% growth in our money market fund balances that were driving waivers. [​W]​e'​re fortunate, too, in that we have a very robust liquidity solutions business. We offer both in-​house as well as third-​party solutions. And that has been certainly very attractive to our clients as we'​ve endeavored to manage the balance sheet. [​G]​oing forward, we will continue to do that ... we'​re comfortable where we are."

BNY CEO Todd Gibbons tells us, "​It'​s a very disciplined process ... and we look at it client by client. The good news is we'​ve been able to capture most of that in our money market funds or our Liquidity Direct offerings. So we are gaining market share there. And we'​ve got a little bit of benefit when the Fed did increase the interest rate on excess reserves and the reverse repo.... They provided a bit of an outlet. So, we think even though the Fed will probably continue to provide liquidity and build their balance sheet that we should be able to manage it. But our best guess right now is we'​re pretty close to the trough. And as we think through money market fee waivers, it does feel like the support in the reverse repo program has probably bottomed that out."

See also Charles Schwab'​s latest earnings releases, which shows fee waivers of $​85 million in the latest quarter and $​163 million over the past six months through June 30, 2021. (​Watch for more earnings and waiver news in coming days.)

In other news, 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 July 13 News, "July MF Portfolio Holdings: Repo Surge Again on RRP; T-​Bills Plunge.")

Their MMF Holdings release says, "The Investment Company Institute (​ICI) reports that, as of the final Friday in June, prime money market funds held 36.​2 percent of their portfolios in daily liquid assets and 49.​7 percent in weekly liquid assets, while government money market funds held 81.​6 percent of their portfolios in daily liquid assets and 90.​0 percent in weekly liquid assets." Prime DLA was up from 32.​9% in May, and Prime WLA increased from 47.​7%. Govt MMFs' DLA increased from 80.​4% in May and Govt WLA increased from 89.​0% from the previous month.

ICI explains, "At the end of June, prime funds had a weighted average maturity (​WAM) of 44 days and a weighted average life (​WAL) of 61 days. Average WAMs and WALs are asset-​weighted. Government money market funds had a WAM of 37 days and a WAL of 85 days." Prime WAMs and WALs were both down one day from the previous month. Govt WAMs were unchanged while WALs were up one day from May.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $​172.​90 billion in May to $​235.​89 billion in June. Government money market funds' holdings attributable to the Americas rose from $​3,​555.​35 billion in May to $​3,​649.​79 billion in June."

The Prime Money Market Funds by Region of Issuer table shows Americas-​related holdings at $​235.​9 billion, or 48.​9%; Asia and Pacific at $​88.​7 billion, or 18.​4%; Europe at $​152.​8 billion, or 31.​7%; and, Other (​including Supranational) at $​4.​7 billion, or 1.​0%. The Government Money Market Funds by Region of Issuer table shows Americas at $​3.​650 trillion, or 90.​5%; Asia and Pacific at $​133.​1 billion, or 3.​3%; Europe at $​240.​4 billion, 6.​0%, and Other (​Including Supranational) at $​11.​2 billion, or 0.​3%."

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The Securities and Exchange Commission'​s latest monthly "Money Market Fund Statistics" summary shows that total money fund assets fell by $​86.​9 billion in June to $​5.​026 trillion. (Month-​to-​date in July assets are down $​67.​8 billion through 7/​15, according to our MFI Daily.) The SEC shows that Prime MMFs fell by $​19.​9 billion in June to $​894.​7 billion, Govt & Treasury funds decreased $​67.​8 billion to $​4.​029 trillion and Tax Exempt funds increased $​0.​8 billion to $​102.​3 billion. Yields were slightly higher in June, their first increase in 24 months. The SEC'​s Division of Investment Management summarizes monthly Form N-​MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below. (Reminder: Register for our "Money Fund Wisdom Product Training" webinar, which will take place tomorrow, Tuesday, July 20 from 2-​3pm EDT.)

June'​s asset declines follow increases of $​72.​4 billion in May, $​46.​3 billion in April, $​146.​1 billion in March, $​30.​5 billion in February and $​35.​4 billion in January. Over the 12 months through 6/​30/​21, total MMF assets have decreased by $​78.​4 billion, or -​1.​5%, according to the SEC'​s series. (​Note that the SEC'​s series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)

The SEC'​s stats show that of the $​5.​026 trillion in assets, $​894.​7 billion was in Prime funds, down $​19.​9 billion in June. This follows a decline of $​14.​6 billion in May, an increase of $​1.​3 billion in April and $​7.​2 billion in March, and a decrease of $​29.​2 billion in February. Prime funds represented 17.​8% of total assets at the end of June. They'​ve decreased by $​267.​2 billion, or -​23.​0%, over the past 12 months.

Government & Treasury funds totaled $​4.​096 trillion, or 80.​1% of assets. They decreased by $​67.​8 billion in June, after increasing $​90.​3 billion in May, $​48.​4 billion in April, $​140.​9 billion in March and $​64.​3 billion in February. Govt & Treasury MMFs are up $​223.​1 billion over 12 months, or 5.​9%. Tax Exempt Funds increased $​0.​8 billion to $​102.​3 billion, or 2.​0% of all assets. The number of money funds was 319 in June, down one from the previous month and down 40 funds from a year earlier.

Yields for Taxable MMFs rebounded in June. The Weighted Average Gross 7-​Day Yield for Prime Institutional Funds on June 30 was 0.​09%, the same as the prior month. The Weighted Average Gross 7-​Day Yield for Prime Retail MMFs was 0.​15%, also flat. Gross yields were 0.​09% for Government Funds, up four basis points from last month. Gross yields for Treasury Funds were up two basis points to 0.​06%. Gross Yields for Muni Institutional MMFs were down a basis point to 0.​06% in June. Gross Yields for Muni Retail funds were down three basis points to 0.​09%.

The Weighted Average 7-​Day Net Yield for Prime Institutional MMFs was 0.​05%, unchanged from the previous month but down 6 basis points from 12/​31/​20. The Average Net Yield for Prime Retail Funds was 0.​02%, unchanged from the previous month, and down a basis point since 12/​31/​20. Net yields were 0.​02% for Government Funds, unchanged from last month. Net yields for Treasury Funds were also unchanged from the previous month at 0.​01%. Net Yields for Muni Institutional MMFs were down one bps from May to 0.​02%. Net Yields for Muni Retail funds were unchanged at 0.​01% in June. (​Note: These averages are asset-​weighted.)

WALs and WAMs were also mixed in June. The average Weighted Average Life, or WAL, was 54.​0 days (​down 3.​1 days) for Prime Institutional funds, and 48.​2 days for Prime Retail funds (​down 1.​9 days). Government fund WALs averaged 82.​4 days (​down 0.​5 days) while Treasury fund WALs averaged 89.​1 days (​up 4.​2 days). Muni Institutional fund WALs were 15.​7 days (​up 2.​0 days from the previous month), and Muni Retail MMF WALs averaged 25.​6 days (​up 3.​0 days).

The Weighted Average Maturity, or WAM, was 36.​8 days (​down 3.​4 days from the previous month) for Prime Institutional funds, 37.​8 days (​down 1.​8 days from the previous month) for Prime Retail funds, 35.​3 days (​down 0.​4 days) for Government funds, and 40.​9 days (​up 1.​7 days) for Treasury funds. Muni Inst WAMs were up 1.​8 days to 15.​4 days, while Muni Retail WAMs increased 2.​6 days to 24.​3 days.

Total Daily Liquid Assets for Prime Institutional funds were 53.​7% in June (​up 1.​5% from the previous month), and DLA for Prime Retail funds was 41.​4% (​up 6.​1% from previous month) as a percent of total assets. The average DLA was 73.​8% for Govt MMFs and 96.​6% for Treasury MMFs. Total Weekly Liquid Assets was 64.​5% (​down 0.​2% from the previous month) for Prime Institutional MMFs, and 54.​0% (​up 6.​8% from the previous month) for Prime Retail funds. Average WLA was 85.​4% for Govt MMFs and 99.​4% for Treasury MMFs.

In the SEC'​s "Prime Holdings of Bank-​Related Securities by Country table for June 2021," the largest entries included: Canada with $​97.​7 billion, France with $​66.​0 billion, Japan with $​65.​5 billion, the U.​S. with $​55.​1B, the U.​K. with $​29.​9B, the Netherlands with $​29.​5B, Germany with $​28.​4B, Aust/​NZ with $​24.​6B and Switzerland with $​11.​2B. The only gainer among the "Prime MMF Holdings by Country" was: Canada (​up $​2.​3B). The biggest decreases were shown by: France (​down $​22.​4 billion), Germany (​down $​9.​5B), Japan (​down $​8.​3B), the U.​K. (​down $​6.​0), Switzerland (​down $​3.​2B), the Netherlands (​down $​2.​0B), Aust/​NZ (​down $​0.​1B), and the U.​S. (​unch).

The SEC'​s "Prime Holdings of Bank-​Related Securities by Region" table shows Europe had $​76.​1B (​down $​30.​5B from last month), the Eurozone subset had $​130.​4B (​down $​46.​2B). The Americas had $​152.​9 billion (​up $​2.​3B), while Asia Pacific had $​104.​0B (​down $​9.​2B).

The "​Prime MMF Aggregate Product Exposures" chart shows that of the $​890.​7B billion in Prime MMF Portfolios as of June 30, $​396.​9B (​44.​6%) was in Government & Treasury securities (​direct and repo) (​down from $​322.​5B), $​176.​3B (​19.​8%) was in CDs and Time Deposits (​down from $​230.​9B), $​161.​6B (​18.​1%) was in Financial Company CP (​down from $​190.​5B), $​119.​3B (​13.​4%) was held in Non-​Financial CP and Other securities (​down from $​122.​3B), and $​36.​6B (​4.​1%) was in ABCP (​down from $​39.​3B).

The SEC'​s "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.​S. with $​160.​7 billion, Canada with $​128.​4 billion, France with $​132.​4 billion, the U.​K. with $​64.​0 billion, Germany with $​21.​6 billion, Japan with $​140.​9 billion and Other with $​33.​3 billion. All MMF Repo with the Federal Reserve was up $​385.​1 billion in June to $​843.​7B billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 8.​0%, Prime Retail MMFs with 6.​2%, Muni Inst MMFs with 1.​7%, Muni Retail MMFs with 4.​0%, Govt MMFs with 13.​8% and Treasury MMFs with 13.​4%.

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As we mentioned last week, over 30 comment letters have been posted in response to the European Securities and Markets Authority'​s (​ESMA'​s) "Consultation on EU Money Market Fund Regulation - Legislative Review." We'​ve quoted from a few so far, but today we quote from the two of the big European fund associations, Irish Funds and EFAMA, the European Fund and Asset Management Association. We also review our latest MFI International statistics and our MFI International Money Fund Portfolio Holdings data set below.

The first comment letter says, "The Irish Funds Industry Association is the representative body for the international investment fund community in Ireland. Irish Funds represents fund managers, administrators, depositaries, transfer agents, professional advisory firms and other specialist firms involved in the international fund services industry in Ireland. Ireland is the largest European fund domicile for money market funds, with net assets in Irish domiciled MMFs amounting to EUR 571 billion or approximately 41% of total European domiciled MMF assets (​source: Central Bank of Ireland, April 2021 and EFAMA, Q4 2020). All MMF product types (​LVNAV, PDCNAV and VNAV (​short-​term and standard) MMFs) are established in Ireland. The most predominant product type by assets is LVNAV (​approximately 78% of total net assets), followed by PDCNAV (​approximately 17%) and VNAV (​approximately 5%).... Given the prevalence of MMFs in Ireland, this consultation is particularly important for Irish Funds and we welcome the opportunity to comment."

It tells us, "​This review of the MMF Regulation is prompted not by the COVID-​19 March crisis but is a scheduled review in accordance with the provisions of that Regulation. As such, it is worth taking a broader view and giving greater recognition to the fact that MMFs have proven to be resilient during the COVID-​19 March crisis. As recognised in paragraph 20 of the Consultation, no EU or US MMFs had to implement liquidity fees on redemptions or redemption gates or suspend redemptions. Further, IOSCO'​s Thematic Note Money Market Funds during the March-​April in November 2020 stated that 'deviations between stable and floating net asset values of $​LVNAV widened, but the 20bps threshold was not breached.'"

Irish Funds' comment explains, "Some of the key objectives of MMF Regulation were to strengthen the resilience of MMFs and to address potential systemic risks in light of the 2008 financial crisis. There was a particular focus to ensure that the failure of a MMF would not cause contagion. The COVID-​19 March crisis has been a real life proving ground for the EU money market fund reforms in this regard. Given that MMFs have proven sufficiently resilient to withstand this challenge, this perhaps proves that the MMF Regulation is fit for purpose and does not require significant amendment."

They add, "​That said, there are enhancements that can be made. We support the Consultation'​s proposal regarding the de-​coupling of fees/​gates/​suspensions from liquidity thresholds. In addition, we propose that (​1) the MMF Regulation be amended to include a general power for regulators to request more frequent reporting in stressed market conditions (​question 10 below) and (​2) the publication frequency of the daily and weekly liquid asset levels should be increased to daily."

The second letter tells us, "EFAMA welcomes ESMA'​s preparatory work on the review of the MMFR, an effort that is also well-​timed in the context of a broader debate on MMF reform options taking place within the international standard setting bodies (​IOSCO and FSB) and in anticipation of their respective consultations in the coming weeks. Our view is that such reforms should aim to preserve the intermediary role that MMFs play in short-​term money markets, while continuing to offer a critical alternative to traditional bank financing. Conscious of the narrower scope of the MMFR review, we nonetheless agree with the need to explore options to improve the functioning of the secondary market, especially under stressed conditions. Those aimed at incentivising liquidity provision by dealers ... should be explored in depth at the international level.... We would call on ESMA to reinforce this need through its participation in the international workstreams launched at the end of 2020 by IOSCO and the FSB as the leading global standard-​setting bodies."

They state, "Efforts at reforming the current EU MMFR regime should remain strictly fact-​based. Despite the broadly accurate analysis performed by ESMA in the opening sections of its consultation document, there are nevertheless a few key aspects that have not been adequately reflected. These relate firstly to the prudent management of liquidity by European MMFs, both before and throughout the March 2020 liquidity crisis. Secondly, we note that the exclusion from the scope of the ECB'​s Pandemic Emergency Purchase Programme (​PEPP) of financial commercial paper and of securities denominated in non-​Euro currencies in March 2020 would also not support many of the far-​reaching reform options ESMA is presently considering."

Finally, EFAMA adds, "Out of the options presented in the consultation document for consideration, we express a clear preference for decoupling the potential activation of liquidity fees or gates from a possible breach of the prescribed weekly (​30%) and daily (​10%) liquidity thresholds for LVNAV and public debt CNAV funds.... Of the different types of liquidity management tools put forward by ESMA in the consultation document, we consider that anti-​dilution levies in the form of fixed liquidity fees represent the most appropriate solution for managers to counter unanticipated surges in redemption demands. Swing pricing, as ESMA has correctly also pointed out in its consultation document, remains operationally difficult.... The option to eliminate LVNAV and public debt CNAV remains concerning, especially in light of the resilience demonstrated by these structures."

In related news, Crane Data'​s latest MFI International shows that assets in European or "​offshore" money market mutual funds inched higher over the last month to $​1.​037 trillion, following a small gain the prior month. These U.​S.-​style funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $​4.​4 billion over the last 30 days (​through 7/​14); they'​re down $​22.​8 billion (-​2.​2%) year-​to-​date. Offshore US Dollar money funds are down $​3.​5 billion over the last 30 days and are down $​6.​1 billion YTD to $​529.​6 billion. Euro funds are down E3.​1 billion over the past month, and YTD they'​re down E19.​4 billion to E137.​9 billion. GBP money funds have risen by L2.​9 billion over 30 days, but are down by L16.​6 billion YTD to L239.​9B. U.​S. Dollar (​USD) money funds (​193) account for half (​50.​6%) of the "​European" money fund total, while Euro (​EUR) money funds (​94) make up 16.​5% and Pound Sterling (​GBP) funds (​116) total 29.​4%. We summarize our latest "​offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (​which went out to subscribers yesterday), below.

Offshore USD MMFs yield 0.​03% (​7-​Day) on average (​as of 7/​14/​21), down from 0.​05% on 12/​31/​20, 1.​59% on 12/​31/​19 and 2.​29% on 12/​31/​18. EUR MMFs yield -​0.​66% on average, compared to -​0.​71% at year-​end 2020, -​0.​59% at year-​end 2019 and -​0.​49% at year-​end 2018. Meanwhile, GBP MMFs yielded 0.​01%, up from 0.​00% on 12/​31/​20, down from 0.​64% on 12/​31/​19 and 0.​64% on 12/​31/​18. (​See our latest MFI International for more on the "​offshore" money fund marketplace. Note that these funds are only available to qualified, non-​U.​S. investors.)

Crane'​s July MFII Portfolio Holdings, with data as of 6/​30/​21, show that European-​domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (​CP), 17% in Certificates of Deposit (​CDs), 12% in Repo, 35% in Treasury securities, 12% in Other securities (​primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 29.​3% of their portfolios maturing Overnight, 9.​5% maturing in 2-​7 Days, 18.​2% maturing in 8-​30 Days, 13.​5% maturing in 31-​60 Days, 10.​0% maturing in 61-​90 Days, 13.​9% maturing in 91-​180 Days and 5.​6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (​43.​2%), France (​13.​0%), Canada (​9.​3%), Japan (​7.​5%), Sweden (​6.​2%), Germany (​3.​0%), the U.​K. (​3.​0%), the Netherlands (​3.​0%), Australia (​2.​4%) and Switzerland (​1.​9%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​199.​8 billion (​35.​0% of total assets), BNP Paribas with $​20.​8B (​3.​6%), Skandinaviska Enskilda Banken AB with $​13.​3B (​2.​3%), RBC with $​11.​9B (​2.​1%), Societe Generale with $​11.​7B (​2.​0%) Toronto-​Dominion Bank with $​11.​1B (​1.​9%), CIBC with $​10.​5B (​1.​8%), Swedbank with $​10.​5B (​1.​8%), Mizuho Corporate Bank with $​10.​0B (​1.​7%) and Sumitomo Mitsui Banking Corp with $​9.​8B (​1.​7%).

Euro MMFs tracked by Crane Data contain, on average 38% in CP, 22% in CDs, 24% in Other (​primarily Time Deposits), 11% in Repo, 4% in Treasuries and 1% in Agency securities. EUR funds have on average 29.​3% of their portfolios maturing Overnight, 10.​3% maturing in 2-​7 Days, 16.​9% maturing in 8-​30 Days, 11.​6% maturing in 31-​60 Days, 10.​5% maturing in 61-​90 Days, 15.​3% maturing in 91-​180 Days and 6.​1% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​33.​1%), Japan (​14.​2%), the U.​S. (​10.​2%), Sweden (​7.​5%), Germany (​6.​5%), Switzerland (​6.​0%), Canada (​3.​6%), the U.​K. (​3.​2%), Supranational (​3.​5%) and Belgium (​3.​5%).

The 10 Largest Issuers to "​offshore" EUR money funds include: Credit Agricole with E6.​8B (​5.​4%), BNP Paribas with E6.​7B (​5.​4%), Sumitomo Mitsui Banking Corp with E6.​0B (​4.​8%), Societe Generale with E5.​9B (​4.​7%), Republic of France with E5.​5B (​4.​4%), Zü​rcher Kantonalbank with E4.​6B (​3.​7%), BPCE SA with E4.​2B (​3.​4%), Nordea Bank with E4.​0B (​3.​2%) Mizuho Corporate Bank Ltd with E4.​0B (​3.​2%) and Svenska Handelsbanken with E4.​0B (​3.​2%).

The GBP funds tracked by MFI International contain, on average (​as of 6/​30/​21): 38% in CDs, 21% in CP, 17% in Other (​Time Deposits), 20% in Repo, 4% in Treasury and 0% in Agency. Sterling funds have on average 34.​2% of their portfolios maturing Overnight, 11.​2% maturing in 2-​7 Days, 9.​6% maturing in 8-​30 Days, 12.​5% maturing in 31-​60 Days, 10.​6% maturing in 61-​90 Days, 15.​5% maturing in 91-​180 Days and 6.​4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (​19.​3%), the U.​K. (​18.​4%), Japan (​15.​6%), Canada (​11.​1%), the U.​S. (​5.​0%), Sweden (​4.​6%), Australia (​4.​3%), the Netherlands (​3.​2%), Germany (​3.​1%) and Switzerland (​2.​9%).

The 10 Largest Issuers to "​offshore" GBP money funds include: the UK Treasury with L21.​0B (​10.​3%), Mitsubishi UFJ Financial Group Inc with L9.​5B (​4.​7%), BNP Paribas with L8.​4B (​4.​1%), Sumitomo Mitsui Banking Corp with L8.​0B (​3.​9%), BPCE SA with L6.​9B (​3.​4%), RBC with L6.​8B (​3.​3%), Agence Central de Organismes de Securite Sociale with L6.​4B (​3.​1%), Toronto Dominion with L6.​3B (​3.​1%), Mizuho Corporate Bank Ltd with L6.​0B (​2.​9%) and Sumitomo Mitsui Trust Bank with L5.​7B (​2.​8%).

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The July issue of our Bond Fund Intelligence, which was sent to subscribers Thursday morning, features the lead story, "Worldwide Bond Fund Assets Fall in Q1'​21; US Only Gainer," which reviews assets in the largest bond fund markets overseas; and "John Hancock I.​M. Core Team Focuses on Inflation," which quotes from a piece from Hancock'​s U.​S. Core and Core Plus Fixed Income Team. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped again in June while yields were mixed. We excerpt from the new issue below. (Note: Please join us next week for our "Money Fund Wisdom Product Training" webinar, which will take place Tuesday, July 20 from 2-​3pm EDT. We will give an overview and training on Crane Data products, and unveil the new version of our Money Fund Wisdom database query system.)

BFI'​s "Worldwide" piece reads, "Bond fund assets worldwide fell in the latest quarter after hitting a record $​13.​1 trillion the previous quarter. The U.​S. showed gains, but Luxembourg, Germany and Brazil showed large declines. We review the ICI'​s 'Worldwide Open-​End Fund Assets and Flows, First Quarter 2021 release and statistics below."

It continues, "Worldwide regulated open-​end fund assets increased 2.​5% to $​64.​63 trillion at the end of the first quarter of 2021.... The Investment Company Institute compiles worldwide regulated open-​end fund statistics on behalf of the International Investment Funds Association (​IIFA), the organization of national fund associations.... Globally, bond funds posted an inflow of $​317 billion in the first quarter of 2021, after recording an inflow of $​326 billion in the fourth quarter."

The Inflation article explains, "John Hancock Investment Management'​s Howard Greene, Jeffrey Given and Pranay Sonalkar, Co-​Heads and PMs on the U.​S. Core and Core Plus Fixed Income Team, posted a brief entitled, 'Rising inflation is no reason for investors to head for the sidelines.' They write, '​For the past few months, amid a wave of new government spending initiatives, a large part of the conversation among economists has been about whether inflation would become a bigger issue in the months ahead. After the most recent data from April, the conversation is no longer if inflation returns, but rather how bad it gets and what that could mean for investors.'"

The Core team tells us, "​For many investors in the United States today -- and anyone under the age of 40 -- inflation feels like something of a relic: a 20th century problem that'​s been essentially eliminated. While that may be an attractive idea, the reality is that inflation always has the potential to return under the right combination of conditions -- and if there were ever a time to expect an increase, now is probably it."

A News brief, "Returns Still Rising, Yields Flat in June," says, "Bond fund returns rose and yields were mixed again last month. Our BFI Total Index rose 0.​43% in 1-​month and 4.​45% in 12 mos. The BFI 100 rose 0.​56% in June and 4.​06% over 1 year. Our BFI Conservative Ultra-​Short Index was up 0.​00% over 1-​mo and 0.​65% over 1-​yr; Ultra-​Shorts averaged -​0.​02% in June and 1.​59% over 12 mos. Short-​Term decreased 0.​05% and rose 3.​06%, and Intm-​Term rose 0.​54% in June and 2.​80% over 1-​year. BFI'​s Long-​Term Index rose 1.​29% in June and 2.​68% over 1-​year. Our High Yield Index jumped 0.​98% in June and 13.​14% over 1-​year."

Another News brief quotes the article, "Investors Are Still Pouring Money into Bond Funds,' written by ETF Trends. They write, "It'​s a good time to be a bond fund as investor capital has been pouring into the debt markets despite lingering inflation concerns, which can erode the income derived by bond yields over time. Nonetheless, that'​s not stopping investors from heading into bond funds. It'​s a move that some market analysts are unable to comprehend.... As credit markets start to improve, one option to consider is corporate bonds. Fixed income investors can snag this exposure with the Vanguard Total Corporate Bond ETF ETF Shares (​VTC)."

A third News update covers the FT piece, "Bond Contrarians Vindicated by US Treasury Yield Plunge." They write, "Bond fund managers who bucked a market consensus earlier this year that long-​term interest rates and inflation were headed sharply higher have been rewarded with outsize performance during the market switchback of the past few weeks. Star managers including Scott Minerd at Guggenheim Partners and Stephen Liberatore of Nuveen are riding high in industry league tables, after Treasury yields plunged as low as 1.​25% this week, compared with a peak above 1.​7% at the end of March."

Finally, a sidebar discusses a new ICI "​Viewpoint," "IRA Investors Are Concentrated in Lower-​Cost Mutual Funds." It shows that of the $​12.​2 trillion in IRAs, 45% is in mutual funds and 17% of that total is in bond funds. Thus, bond funds in IRAs total $​935 billion. They write, "IRA bond mutual fund assets ... were 17% of IRA mutual fund assets at year-​end 2020. Average expense ratios for bond mutual funds held by IRA investors have decreased sharply over the past five years and are down 54% from their level in 2000. The average expense ratio paid by bond mutual fund investors in IRAs fell to 0.​39% in 2020, down from 0.​41% in 2019 and 0.​85% in 2000."

Contact us if you'​d like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, mark your calendars for next year'​s Bond Fund Symposium, which is scheduled for March 28-​29, 2022, in Newport Beach, Calif.

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A new paper, "Regulatory constraints for money market funds: The impossible trinity?," written by Michel Baes, Antoine Bouveret and Eric Schaanning, looks at European LVNA money funds and potential regulatory changes. Its Abstract says, "​Despite substantial regulatory reforms, MMFs exposed to private assets experienced severe stress in March 2020. In the EU, Low Volatility Net Asset Value (​LVNAVs) MMFs faced acute challenges to meet regulatory requirements while facing high redemptions. Such funds have to maintain their mark-​to-​market net asset value within 20 basis points of a constant net asset value, and their weekly liquidity asset above the 30% requirement. We provide a stylized model to show that under certain conditions related to outflows and market liquidity of their assets, LVNAVs may face difficulties in fulfilling both regulatory constraints at the same time. We calibrate the model to EU data to assess possible reforms to MMFs. Increasing the NAV deviation and improving the market liquidity of the assets MMFs invest in would substantially improve the resilience of MMFs. Introducing countercyclical liquidity buffers would also enhance their resilience especially in times of stress, and the effect is larger than increasing liquidity requirements."

The Introduction tells us, "In March 2020, at the onset of the COVID-​19 crisis, Money Market Funds (​MMFs) experienced massive redemptions from investors. In the European Union and in the US, MMFs investing in private short-​term assets saw outflows up to 20% of their net asset value in less than two weeks (​FSB (​2021b)). Levels of redemptions were higher than those observed during the Global Financial Crisis of 2007-​2008 (​Investment Company Institute (​2020)). Faced with large outflows, MMFs had to dispose of assets to raise cash to meet redemptions. However, private money markets froze in March, forcing some MMFs to use their liquidity buffers to raise cash, and in a few cases US MMFs sponsors chose to step in to support their MMFs. To safeguard financial stability, the Federal Reserve and the European Central Bank decided to intervene to support money markets and MMFs. Despite far-​reaching regulatory reforms of the MMF sector on both sides of the Atlantic, it is the second time in less than 15 years that MMFs experience acute stress requiring external intervention."

It explains, "In this paper, we look at MMFs' vulnerabilities related to the interplay between regulatory constraints and asset liquidity. When faced with redemptions, MMFs have to dispose of assets while maintaining liquidity buffers above regulatory requirements. We show that for MMFs offering constant net asset value, such as Low Volatility Net Asset Value (​LVNAVs) in the EU, limited asset liquidity can make MMFs unable to maintain simultaneously (​i) liquidity buffers above regulatory requirements and (​ii) the deviation between the mark-​to-​market net asset value within the required range."

The European authors comment, "We derive the optimal liquidation strategy for MMFs in a stylized model and show how the maximum levels of redemptions relate to asset liquidity and regulatory constraints. Given asset liquidity levels and regulatory constraints related to liquidity requirements and NAV deviations, managers optimize their sales of assets to be maximize the amount of redemptions requests they could meet. Using portfolio data on European LVNAV MMFs, we estimate the maximum amount of redemptions such MMFs could meet without breaching regulatory requirements and find those levels to range between 40% and 65%."

They continue, "Overall, our results shed light on vulnerabilities related to the interaction between asset liquidity and regulatory requirements and provide pointers for MMF reform. MMF resilience can be significantly increased by removing stable NAV and improving asset liquidity. The introduction of countercyclical liquidity buffers (​where regulatory WLA would be lowered to allow MMFs to dispose of their most liquid assets in times of stress) would also increase MMF resilience, and the effect is larger than increasing liquidity requirements at all times. This paper also provides some insights about how macroprudential stress tests could be used to identify coordination failures related to the simultaneous sales of similar assets with limited liquidity."

The piece adds, "This paper complements recent work on MMFs vulnerabilities, which have tended to focus on the role of investors and the link between run risk and liquidity requirements. Li et al. (​2021) show that US prime MMFs more likely to use fees and gates (​due to lower liquid assets) experienced higher outflows than MMFs with high liquidity buffers. Using data on US and European MMFs, Cipriani, Marco and La Spada, Gabriele (​2020) show that runs were more severe for MMFs offered to institutional investors and at risk of imposing fees or gates due to the breach of regulatory requirements. Avalos and Xia (​2021) find that MMFs serving large institutional investors had large outflows irrespective of their liquidity levels, while the liquidity of the funds was more relevant for small institutional investors."

It explains, "The remainder of the paper is as follows: Section 1 describes the institutional back ground for European MMFs; Section 2 discusses MMF vulnerabilities in the context of the COVID-​19 crisis; Section 3 outlines a stylized model; Section 4 applies the model to data on European MMFs; Section 5 discusses coordination failures and Section 6 concludes."

On "Potential reforms of MMFs," the paper says, "Following the events of March 2020, there has been a range of proposals to reform MMFs. In the US, the President Working Group released a report in December 2020 outlining possible reforms (​President Working Group (​2020)). In the EU, ESMA published a Consultation Report in March 2021 with the objective to review the stress experienced by MMFs during the March 2020 crisis as well ass proposing potential reforms (​ESMA (​2021)). At the international level, the Financial Stability Board is also expected to publish soon a Consultation Report with proposals to improve the resilience of MMFs (​FSB (​2021a))."

It tells us, "In that context, the model can be used to assess potential regulatory reforms to MMFs and see which type of reforms could have the larger impact in enhancing the resilience of MMFs. In particular, the model can be used to assess reforms targeted at the asset side of MMFs. In this section, we perform comparative statics of different reform options in order to evaluate their impact on the resilience of MMFs. To this end, we use the analytical formulas developed in the preceding sections numerical methods for a representative."

Finally, Baes, Bouveret and Schaanning conclude, "We have shown how the use of amortised cost and liquidity requirements can create challenges for MMFs exposed to instruments with limited liquidity. In particular, in times of stress, MMFs face difficulties in selling assets to meet redemptions while complying with regulatory requirements. Using data on EU LVNAV MMFs, we use our model to assess the impact of policy reform on the resilience of MMFs. Overall, we find that changing required liquidity requirements has limited effects on the resilience of funds. In contrast, increasing the NAV deviation and at the limit removing the use of amortised cost have a large effect on the maximum amount of redemptions a fund can meet. Relatedly, introducing countercyclical liquidity buffers can foster resilience by providing additional flexibility to MMFs in times of stress. Finally, improving the liquidity of underlying markets has also a significant impact on the resilience of MMFs. The framework outlined in this paper can be used by Authorities when considering reforms to MMFs."

​

Crane Data'​s July Money Fund Portfolio Holdings, with data as of June 30, 2021, show a huge increase in Repo holdings and a giant drop in Treasuries. Money market securities held by Taxable U.​S. money funds (​tracked by Crane Data) inched higher by $​1.​5 billion to $​4.​949 trillion in June, after rising $​30.​2 billion in May, $​29.​1 billion in April and $​187.​5 billion in March. Treasury securities remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of CD , Other/​Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: Please join us next Tuesday, July 20 from 2-​3pm Eastern, for our "Money Fund Wisdom Product Training" webinar.)

Among taxable money funds, Treasury securities dropped $​134.​5 billion (-​5.​6%) to $​2.​272 trillion, or 45.​9% of holdings, after falling $​135.​0 billion in May and $​29.​6 billion in April (​but jumping $​142.​8 billion in March). Repurchase Agreements (​repo) surged $​251.​0 billion (​17.​4%) to $​1.​690 billion, or 34.​1% of holdings, after jumping $​200.​9 billion in May, $​54.​1 billion in April and $​108.​3 billion in March. Government Agency Debt decreased by $​26.​7 billion (-​4.​7%) to $​536.​7 billion, or 10.​8% of holdings, after decreasing $​22.​7 billion in May, $​15.​8 billion in April and $​35.​1 billion in March. Repo, Treasuries and Agencies totaled $​4.​498 trillion, representing a massive 90.​9% of all taxable holdings.

Money funds' holdings of CP, CDs, VRDNs and Other (​mainly Time Deposits) all were lower in June. Commercial Paper (​CP) decreased $​36.​1 billion (-​13.​7%) to $​226.​9 billion, or 4.​6% of holdings, after decreasing $​5.​0 billion in May, but increasing $​2.​4 billion in April and $​3.​1 billion in March. Certificates of Deposit (​CDs) fell by $​14.​9 billion (-​10.​8%) to $​123.​7 billion, or 2.​5% of taxable assets, after dropping $​3.​7 billion in May, but increasing $​6.​5 billion in April and $​4.​1 billion in March. Other holdings, primarily Time Deposits, decreased $​35.​9 billion (-​29.​7%) to $​84.​9 billion, or 1.​7% of holdings, after dropping $​5.​4 billion in May, increasing $​11.​5 billion in April and decreasing $​35.​3 billion in March. VRDNs decreased to $​15.​0 billion, or 0.​3% of assets. (​Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately late Tuesday.)

Prime money fund assets tracked by Crane Data fell to $​878 billion, or 17.​7% of taxable money funds' $​4.​949 trillion total. Among Prime money funds, CDs represent 14.​1% (​down from 15.​5% a month ago), while Commercial Paper accounted for 25.​8% (​down from 29.​5% in May). The CP totals are comprised of: Financial Company CP, which makes up 18.​2% of total holdings, Asset-​Backed CP, which accounts for 4.​0%, and Non-​Financial Company CP, which makes up 3.​6%. Prime funds also hold 3.​7% in US Govt Agency Debt, 15.​8% in US Treasury Debt, 21.​5% in US Treasury Repo, 0.​4% in Other Instruments, 6.​1% in Non-​Negotiable Time Deposits, 0.​8% in Other Repo, 3.​3% in US Government Agency Repo and 0.​8% in VRDNs.

Government money fund portfolios totaled $​2.​808 trillion (​56.​7% of all MMF assets), up from $​2.​767 trillion in May, while Treasury money fund assets totaled another $​1.​263 trillion (​25.​5%), down from $​1.​287 trillion the prior month. Government money fund portfolios were made up of 18.​0% US Govt Agency Debt, 12.​2% US Government Agency Repo, 40.​9% US Treasury Debt, 28.​5% in US Treasury Repo, 0.​4% in Other Instruments. Treasury money funds were comprised of 78.​0% US Treasury Debt and 21.​9% in US Treasury Repo. Government and Treasury funds combined now total $​4.​071 trillion, or 82.​3% of all taxable money fund assets.

European-​affiliated holdings (​including repo) decreased by $​156.​1 billion in June to $​501.​2 billion; their share of holdings fell to 10.​1% from last month'​s 13.​3%. Eurozone-​affiliated holdings decreased to $​364.​5 billion from last month'​s $​454.​6 billion; they account for 7.​0% of overall taxable money fund holdings. Asia & Pacific related holdings decreased to $​223.​3 billion (​4.​5% of the total) from last month'​s $​231.​5 billion. Americas related holdings increased to $​4.​220 trillion from last month’​s $​4.​054 trillion, and now represent 85.​3% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (​up $​298.​9 billion, or 31.​0%, to $​1.​265 trillion, or 25.​6% of assets); US Government Agency Repurchase Agreements (​down $​50.​4 billion, or -​11.​9%, to $​372.​0 billion, or 7.​5% of total holdings), and Other Repurchase Agreements (​up $​2.​5 billion, or 5.​0%, from last month to $​53.​3 billion, or 1.​1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​down $​28.​7 billion to $​159.​7 billion, or 3.​2% of assets), Asset Backed Commercial Paper (​down $​2.​7 billion to $​35.​5 billion, or 0.​7%), and Non-​Financial Company Commercial Paper (​down $​4.​7 billion to $​31.​6 billion, or 0.​6%).

The 20 largest Issuers to taxable money market funds as of June 30, 2021, include: the US Treasury ($​2,​272 billion, or 45.​9%), Federal Reserve Bank of New York ($​853.​8B, 17.​3%), Federal Home Loan Bank ($​293.​5B, 5.​9%), BNP Paribas ($​107.​8B, 2.​2%), Federal Farm Credit Bank ($​90.​9B, 1.​8%), RBC ($​90.​2B, 1.​8%), Fixed Income Clearing Corp ($​82.​3B, 1.​7%), Federal National Mortgage Association ($​81.​9B, 1.​7%), JP Morgan ($​79.​9B, 1.​6%), Sumitomo Mitsui Banking Co ($​60.​5B, 1.​2%), Federal Home Loan Mortgage Corp ($​52.​4B, 1.​1%), Citi ($​46.​7B, 0.​9%), Barclays PLC ($​46.​1B, 0.​9%), Mitsubishi UFJ Financial Group Inc ($​45.​5B, 0.​9%), Bank of America ($​44.​6B, 0.​9%), Canadian Imperial Bank of Commerce ($​36.​3B, 0.​7%), Toronto-​Dominion Bank ($​34.​0B, 0.​7%), Nomura ($​33.​6B, 0.​7%), Societe Generale ($​32.​9B, 0.​7%) and Bank of Montreal ($​30.​2B, 0.​6%),

In the repo space, the 10 largest Repo counterparties (​dealers) with the amount of repo outstanding and market share (​among the money funds we track) include: Federal Reserve Bank of New York ($​839.​0B, 49.​6%), BNP Paribas ($​89.​5B, or 5.​3%), Fixed Income Clearing Corp ($​82.​3B, or 4.​9%), JP Morgan ($​72.​7B, or 4.​3%), RBC ($​71.​5B, or 4.​2%), Sumitomo Mitsui Banking Corp ($​45.​4B, or 2.​7%), Bank of America ($​41.​6B, or 2.​5%), Citi ($​40.​8B, or 2.​4%), Mitsubishi UFJ Financial Group Inc ($​37.​3B, or 2.​2%) and Nomura ($​33.​6B, or 2.​0%). The largest users of the $​460B in Fed RRP included: Fidelity Govt Money Market ($​61.​4B), JPMorgan US Govt MM ($​59.​5B), Fidelity Govt Cash Reserves ($​57.​2B), Morgan Stanley Inst Liq Govt ($​50.​7B), Fidelity Cash Central Fund ($​49.​0B), Fidelity Inv MM: Govt Port ($​40.​4B), Goldman Sachs FS Govt ($​40.​0B), BlackRock Lq FedFund ($​39.​5B), Federated Hermes Govt ObI ($​37.​0B) and BlackRock Lq T-​Fund ($​30.​5B).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: RBC ($​18.​7B or 5.​0%), Toronto-​Dominion Bank ($​18.​5B or 4.​9%), BNP Paribas ($​18.​3B or 4.​9%), Canadian Imperial Bank of Commerce ($​16.​2B or 4.​3%), Sumitomo Mitsui Banking Corp ($​15.​1B or 4.​0%), Bank of Montreal ($​14.​3B or 3.​8%), Mizuho Corporate Bank Ltd ($​13.​2B or 3.​5%), Barclays PLC ($​12.​9B or 3.​4%), Sumitomo Mitsui Trust Bank ($​11.​9B or 3.​2%) and Skandinaviska Enskilda Banken AB ($​10.​2B or 2.​7%).

The 10 largest CD issuers include: Sumitomo Mitsui Banking Corp ($​11.​6B or 9.​4%), Bank of Montreal ($​11.​3B or 9.​1%), Canadian Imperial Bank of Commerce ($​9.​5B or 7.​7%), Toronto-​Dominion Bank ($​7.​1B or 5.​8%), Sumitomo Mitsui Trust Bank ($​6.​7B or 5.​4%), Landesbank Baden-​Wurttemberg ($​6.​6B or 5.​3%), Mitsubishi UFJ Financial Group Inc ($​5.​7B or 4.​6%), Mizuho Corporate Bank Ltd ($​5.​3B or 4.​3%), Credit Mutuel ($​4.​1B or 3.​4%) and Bank of Nova Scotia ($​3.​9B or 3.​1%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: BNP Paribas ($​14.​0B or 7.​2%), Toronto-​Dominion Bank ($​11.​3B or 5.​8%), RBC ($​9.​5B or 4.​9%), Societe Generale ($​6.​9B or 3.​6%), JP Morgan ($​6.​8B or 3.​5%), Barclays PLC ($​6.​2B or 3.​2%), DNB ASA ($​5.​6B or 2.​9%), NRW.​Bank ($​5.​5B or 2.​8%), Swedbank AB ($​5.​4B or 2.​8%) and UBS AG ($​5.​4B or 2.​8%).

The largest increases among Issuers include: Federal Reserve Bank of New York (​up $​394.​1B to $​853.​8B), Fixed Income Clearing Corp (​up $​10.​2B to $​82.​3B), Sumitomo Mitsui Banking Corp (​up $​9.​0B to $​60.​5B), Citi (​up $​2.​6B to $​46.​7B), Toronto-​Dominion Bank (​up $​2.​0B to $​34.​0B), Caisse d'​Amortissement de la Dette Sociale (​up $​1.​5B to $​7.​0B), ING Bank (​up $​1.​4B to $​22.​3B), Mitsubishi UFJ Financial Group Inc (​up $​0.​8B to $​45.​5B), Standard Chartered Bank (​up $​0.​7B to $​12.​6B) and ABN Amro Bank (​up $​0.​5B to $​19.​8B).

The largest decreases among Issuers of money market securities (​including Repo) in June were shown by: US Treasury (​down $​134.​5B to $​2,​271.​6B), Credit Agricole (​down $​38.​1B to $​29.​4B), Federal Home Loan Bank (​down $​22.​7B to $​293.​5B), Bank of America (​down $​22.​4B to $​44.​6B), Societe Generale (​down $​19.​1B to $​32.​9B), Barclays PLC (​down $​16.​6B to $​46.​1B), RBC (​down $​11.​6 to $​90.​2B), Natixis (​down $​10.​1B to $​16.​8B), Bank of Nova Scotia (​down $​9.​2B to $​16.​4B) and BNP Paribas (​down $​8.​8B to $​107.​8).

The United States remained the largest segment of country-​affiliations; it represents 80.​9% of holdings, or $​4.​003 trillion. Canada (​4.​4%, $​217.​1B) was number two, and Japan (​4.​3%, $​211.​4B) was third. France (​4.​2%, $​208.​2B) occupied fourth place. The United Kingdom (​1.​9%, $​96.​1B) remained in fifth place. The Netherlands (​1.​0%, $​51.​4B) was in sixth place, followed by Germany (​1.​1%, $​50.​0B), Sweden (​0.​6%, $​29.​4B), Australia (​0.​6%, $​28.​2B) and Switzerland (​0.​4%, $​17.​7B). (​Note: Crane Data attributes Treasury and Government repo to the dealer'​s parent country of origin, though money funds themselves "​look-​through" and consider these U.​S. government securities. All money market securities must be U.​S. dollar-​denominated.)

As of June 30, 2021, Taxable money funds held 43.​9% (​up from 38.​6%) of their assets in securities maturing Overnight, and another 8.​9% maturing in 2-​7 days (​down from 10.​4%). Thus, 52.​8% in total matures in 1-​7 days. Another 13.​4% matures in 8-​30 days, while 11.​3% matures in 31-​60 days. Note that over three-​quarters, or 77.​5% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-​90 days, holds 7.​8% of taxable securities, while 11.​2% matures in 91-​180 days, and just 3.​4% matures beyond 181 days. (​Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)

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Crane Data'​s latest monthly Money Fund Portfolio Holdings statistics will be sent out Monday, and we'​ll be writing our normal monthly update on the June 30 data for Tuesday'​s News. But we also published a separate and broader Portfolio Holdings data set based on the SEC'​s Form N-​MFP filings on Friday. (​We continue to merge the two series, and the N-​MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-​MFP summary, with data as of June 30, 2021 includes holdings information from 1,​027 money funds (​down 2 from last month), representing assets of $​5.​100 trillion (​up from $​5.​098 trillion). Prime MMFs now total $​890.​8 billion, or 17.​5% of the total. We review the new N-​MFP data below, and we also look at our revised MMF expense data.

Our latest Form N-​MFP Summary for All Funds (​taxable and tax-​exempt) shows Treasury holdings totaled $​2.​291 trillion (​down from $​2.​427 trillion), or a massive 44.​9% of all holdings. Repurchase Agreement (​Repo) holdings in money market funds jumped (​again) to $​1.​715 trillion (​up from $​1.​442 trillion), or 33.​6% of all assets, and Government Agency securities totaled $​536.​3 billion (​down from $​578.​5 billion), or 11.​3%. Holdings of Treasuries, Government agencies and Repo (​almost all of which is backed by Treasuries and agencies) combined total $​4.​543 trillion, or a stunning 89.​1% of all holdings.

Commercial paper (​CP) totals $​235.​1 billion (​down from $​272.​5 billion), or 4.​6% of all holdings, and the Other category (​primarily Time Deposits) totals $​123.​7 billion (​up from $​163.​0 billion), or 2.​4%. Certificates of Deposit (​CDs) total $​124.​1 billion (​down from $​139.​1 billion), 2.​4%, and VRDNs account for $​74.​9 billion (​down from $​75.​2 billion last month), or 1.​5% of money fund securities.

Broken out into the SEC'​s more detailed categories, the CP totals were comprised of: $​161.​6 billion, or 3.​2%, in Financial Company Commercial Paper; $​35.​6 billion or 0.​7%, in Asset Backed Commercial Paper; and, $​37.​9 billion, or 0.​7%, in Non-​Financial Company Commercial Paper. The Repo totals were made up of: U.​S. Treasury Repo ($​1.​299 trillion, or 25.​5%), U.​S. Govt Agency Repo ($​361.​8B, or 7.​1%) and Other Repo ($​53.​6B, or 1.​1%).

The N-​MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $​230.​3 billion (​down from $​267.​9 billion), or 25.​9%; Repo holdings of $​272.​3 billion (​up from $​174.​1 billion), or 30.​6%; Treasury holdings of $​144.​4 billion (​down from $​165.​5 billion), or 16.​2%; CD holdings of $​124.​1 billion (​down from $​139.​1 billion), or 13.​9%; Other (​primarily Time Deposits) holdings of $​78.​4 billion (​down from $​116.​6 billion), or 8.​8%; Government Agency holdings of $​33.​6 billion (​down from $​33.​8 billion), or 3.​8% and VRDN holdings of $​7.​5 billion (​up from $​8.​6 billion), or 0.​8%.

The SEC'​s more detailed categories show CP in Prime MMFs made up of: $​161.​6 billion (​down from $​190.​5 billion), or 18.​1%, in Financial Company Commercial Paper; $​35.​6 billion (​down from $​38.​3 billion), or 4.​0%, in Asset Backed Commercial Paper; and $​33.​2 billion (​down from $​39.​1 billion), or 3.​7%, in Non-​Financial Company Commercial Paper. The Repo totals include: U.​S. Treasury Repo ($​191.​1 billion, or 21.​5%), U.​S. Govt Agency Repo ($​27.​8 billion, or 3.​1%), and Other Repo ($​53.​4 billion, or 6.​0%).

In other news, money fund charged expense ratios inched higher in June after hitting a record low of 0.​06% in May. Our Crane 100 Money Fund Index and Crane Money Fund Average both were 0.​07% as of June 30, 2021. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-​MFP data the morning of the 6th business day of the new month. (​They posted this info Friday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.​xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout Friday morning.) Visit our "Content" page for the latest files, and see below for the review of the latest N-​MFP Portfolio Holdings data.

Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio (Exp%) of 0.​07%, up one basis point from last month'​s record low level. The average is down from 0.​27% on Dec. 31, 2019, so we estimate that funds are waiving 20 bps, or 74% of normally charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also showed a charged expense ratio of 0.​07% as of June 30, 2021, up one basis points from the month prior but down from 0.​40% at year-​end 2019.

Prime Inst MFs expense ratios (​annualized) now average 0.​12% (​up one basis point from last month), Government Inst MFs expenses average 0.​05% (​up a basis point from the month prior), Treasury Inst MFs expenses also average 0.​05% (​up one basis point from last month). Treasury Retail MFs expenses currently sit at 0.​05%, (​up one bp), Government Retail MFs expenses yield 0.​05% (​up two basis points in June). Prime Retail MF expenses are 0.​14% (​unchanged from the month prior). Tax-​exempt expenses, however, were down 4 basis points over the month to 0.​07% on average.

Gross 7-​day yields were higher on average for the month ended June 30, 2021. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (​currently 734), shows a 7-​day gross yield of 0.​09%, up two basis points from the previous month. The Crane Money Fund Average is down 1.​65% from 1.​72% at the end of 2019. Our Crane 100'​s 7-​day gross yield also rose two basis points, ending the month at 0.​09%, but down 1.​66% from year-​end 2019.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $​3.​530 billion (​as of 6/​30/​21). Our estimated annualized revenue totals increased from $​2.​927 billion last month, but fell from $​6.​028 trillion at the start of 2020 and $​10.​642 trillion at the start of 2019. Charged expenses and gross yields are driven by a number of variables, and the Fed'​s 0.​05% floor on its RRP repo appears to have helped stabilize rates above zero. Nonetheless, severe fee waivers and heavy fee pressure should continue as long as the Fed keeps yields pinned close to the zero floor.

​

Crane Data'​s latest Money Fund Market Share rankings show assets declined across almost all of the largest U.​S. money fund complexes in June. Money market fund assets decreased $​73.​0 billion, or -​1.​4%, last month to $​4.​988 trillion. Assets have increased by $​61.​7 billion, or 1.​3%, over the past 3 months, and they'​ve decreased by $​90.​4 billion, or -​1.​8%, over the past 12 months through June 30, 2021. The only increases among the 25 largest managers last month were seen by Morgan Stanley, DWS, AllianceBernstein and Western, which grew assets by $​6.​2 billion, $​2.​9B, $​1.​1B and $​784 million, respectively. Big declines in June were seen by BlackRock, UBS, Dreyfus, Goldman Sachs and Wells Fargo, which decreased by $​22.​9 billion, $​9.​2B, $​8.​8B, $​7.​4B and $​7.​2B, respectively. Our domestic U.​S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "​Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in June.

Over the past year through June 30, 2021, BlackRock (​up $​117.​4B, or 28.​4%), First American (​up $​42.​7B, or 46.​8%), Morgan Stanley (​up $​39.​3B, or 18.​8%), Dreyfus (​up $​34.​6B, or 16.​8%), T. Rowe Price (​up $​8.​6B, or 21.​9%), DWS (​up $​8.​5B, or 30.​6%), Columbia (​up $​4.​9B, or 35.​3%) and Vanguard (​up $​2.​0B, or 0.​4%) were the largest gainers. Morgan Stanley, Invesco, Dreyfus, Northern and JPMorgan had the largest asset increases over the past 3 months, rising by $​25.​6B, $​13.​3B, $​12.​5B, $​11.​4B and $​11.​4B, respectively. The largest decliners over 3 months included: Vanguard (​down $​14.​4B), Schwab (​down $​12.​0B), American Funds (​down $​7.​5B) and HSBC (​down $​7.​0B).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​886.​6 billion, or 17.​8% of all assets. Fidelity was down $​4.​2B in June, down $​7.​0 billion over 3 mos., and down $​51.​3B over 12 months. BlackRock ranked second with $​527.​8 billion, or 10.​6% market share (​down $​22.​9B, up $​5.​6B and up $​117.​4B for the past 1-​month, 3-​mos. and 12-​mos., respectively). Vanguard remained in third with $​477.​6 billion, or 9.​6% market share (​down $​4.​9B, down $​14.​4B and up $​2.​0B). JP Morgan ranked fourth with $​471.​2 billion, or 9.​4% of assets (​down $​2.​5B, up $​11.​4B and down $​21.​6B for the past 1-​month, 3-​mos. and 12-​mos.), while Goldman Sachs took fifth place with $​349.​6 billion, or 7.​0% of assets (​down $​7.​4B, up $​4.​0B and down $​57.​6B).

Federated Hermes was in sixth place with $​336.​0 billion, or 6.​7% of assets (​down $​615 million, up $​1.​4B and down $​61.​7B), while Morgan Stanley was in seventh place with $​270.​0 billion, or 5.​4% (​up $​6.​2B, up $​25.​6B and up $​39.​3B). Dreyfus ($​227.​1B, or 4.​6%) was in eighth place (​down $​8.​8B, up $​12.​5B and up $​34.​6B), followed by Wells Fargo ($​200.​7B, or 4.​0%, down $​7.​2B, up $​7.​4B and up $​12.​6B). Northern was in 10th place ($​178.​7B, or 3.​6%; down $​1.​3B, up $​11.​4B and down $​1.​1B).

The 11th through 20th-​largest U.​S. money fund managers (​in order) include: Schwab ($​149.​0B, or 3.​0%), SSGA ($​147.​1B, or 2.​9%), American Funds ($​146.​7B, or 2.​9%), First American ($​131.​3B, or 2.​6%), Invesco ($​84.​9B, or 1.​7%), UBS ($​49.​4B, or 1.​0%), T. Rowe Price ($​49.​0B, or 1.​0%), HSBC ($​37.​5B, or 0.​8%), DWS ($​35.​5B, or 0.​7%) and Western ($​35.​0B, or 0.​7%). Crane Data currently tracks 64 U.​S. MMF managers, down one from last month.

When European and "​offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers appear as Fidelity, BlackRock, JP Morgan, Vanguard, Goldman Sachs, Federated Hermes, Morgan Stanley, Dreyfus/​BNY Mellon, Northern and Wells Fargo. Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (​domestic U.​S.) and our MFI International ("​offshore") products.

The largest Global money market fund families include: Fidelity ($​899.​8 billion), BlackRock ($​723.​3B), JP Morgan ($​681.​3B), Vanguard ($​477.​6B) and Goldman Sachs ($​474.​5B). Federated Hermes ($​345.​6B) was sixth, Morgan Stanley ($​327.​5B) was in seventh, followed by Dreyfus ($​250.​5B), Northern ($​204.​6B) and Wells Fargo ($​201.​4B), which round out the top 10. These totals include "​offshore" U.​S. Dollar money funds, as well as Euro and Pound Sterling (​GBP) funds converted into U.​S. dollar totals.

The June issue of our Money Fund Intelligence and MFI XLS, with data as of 6/​30/​21, shows that yields bottomed out in June for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 734), was flat at 0.​01% for the 7-​Day Yield (​annualized, net) Average, the 30-​Day Yield inched down one bps to 0.​01%. The MFA'​s Gross 7-​Day Yield was flat at 0.​07%, the Gross 30-​Day Yield was down a basis point at 0.​07%.

Our Crane 100 Money Fund Index shows an average 7-​Day (​Net) Yield of 0.​02% (​unch) and an average 30-​Day Yield also unchanged at 0.​02%. The Crane 100 shows a Gross 7-​Day Yield of 0.​07% (​unch), and a Gross 30-​Day Yield of 0.​07% (​down one bps). Our Prime Institutional MF Index (​7-​day) yielded 0.​03% (​unch) as of June 30, while the Crane Govt Inst Index increased by one basis point to 0.​02%, the Treasury Inst Index was unchanged at 0.​01%. Thus, the spread between Prime funds and Treasury funds is 2 basis points, and the spread between Prime funds and Govt funds is one basis point. The Crane Prime Retail Index yielded 0.​01% (​unch), while the Govt Retail Index was 0.​01% (​unch), the Treasury Retail Index was also 0.​01% (​unchanged from the month prior). The Crane Tax Exempt MF Index yielded 0.​01% (​unch) in June.

Gross 7-​Day Yields for these indexes in June were: Prime Inst 0.​14% (​unch), Govt Inst 0.​05% (​unch), Treasury Inst 0.​05% (​unch), Prime Retail 0.​15% (​unch), Govt Retail 0.​04% (​unch) and Treasury Retail 0.​04% (​unch). The Crane Tax Exempt Index remained at 0.​12%. The Crane 100 MF Index returned on average 0.​00% over 1-​month, 0.​00% over 3-​months, 0.​01% YTD, 0.​03% over the past 1-​year, 1.​14% over 3-​years (​annualized), 0.​99% over 5-​years, and 0.​52% over 10-​years.

The total number of funds, including taxable and tax-​exempt, was unchanged at 899. There are currently 734 taxable funds, unchanged from the previous month, and 165 tax-​exempt money funds (​also unchanged from last month). (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes or Market Share report.

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The July issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Thursday morning, features the articles: "FSOC, FSB ESMA Comments Set Stage for SEC Reforms '​21," which discusses pending money fund regulations; "Asian MF Symposium Recap; JPMAM'​s Shevlin on China," which reviews our recent Chinese MMF webinar; and, "Worldwide MF Assets Jump in Q1'​21 Led by US, China," which highlights `​ICI'​s latest global asset collection. We also sent out our MFI XLS spreadsheet Thursday a.​m., and have updated our Money Fund Wisdom database query system with 6/​30/​21 data. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship on Monday, July 12, and our July Bond Fund Intelligence is scheduled to go out Thursday, July 15.

MFI'​s lead article says, "Discussions are heating up over another round of money fund regulations, with an SEC reform proposal perhaps coming as soon as next month (​or as late as early next year). Over the past month, the Treasury'​s Financial Stability Oversight Council met, the Financial Stability Board published a study on MMF reform options, and Europe'​s ESMA posted a slew of comment letters. (​Watch for more coverage on the latter in coming days on www.​cranedata.​com.)"

It continues, "​The FSOC addressed MMF reforms during its June meeting. Their statement explains, '​During the executive session, the Council heard an update from Securities and Exchange Commission (​SEC) staff on money market fund reform, including a discussion of public comments received in response to reform options proposed by the President'​s Working Group on Financial Markets.... [​T]​he Council voted to approve a statement highlighting the importance of money market fund reform and supporting the SEC'​s engagement on this important issue.'"

Our latest profile reads, "​Last month, we hosted our latest webinar, 'Asian Money Fund Symposium,' a 2-​hour, 3-​session event which featured J.​P. Morgan Asset Management'​s Aidan Shevlin, Goldman Sachs A.​M.'​s Pat O'​Callaghan, Fitch Ratings' Alastair Sewell, S&​P Global'​s Andrew Paranthoiene and Crane Data'​s Peter Crane. The segments discussed money funds, money markets and investors in China, Japan and several other Eastern markets. We excerpt some of the highlights below. (​See the recording here and the handouts here.)"

Shevlin tells us, "​I work for J.​P. Morgan Asset Management and am the Head of the International Liquidity Fund Management team.... I moved to Hong Kong to help set up our Global Liquidity business here [​and] launch our funds in China. We also have money market funds in Taiwan, in Hong Kong, Singapore, Australia and other types of funds.... So, we'​ve built quite a familiarity and expertise with money markets across the region."

He adds, "Asia is now becoming effectively too big for the world and for Western markets to ignore in terms of its share of global growth, its share of global trade, the amount of bonds outstanding.... It'​s just a massive economy now.... China is the second biggest bond market in the world.... They'​re increasingly being opened to Western investors ... giving investors a huge increase in the range of ... issuers they can buy. It gives them great diversification. Asian issuers typically offer at higher yields than their Western peers, while having a higher credit quality and an equivalent or lower duration.... It'​s a market which everyone is now looking at. Everyone wants to get involved in and be active there."

The "Worldwide" article tells readers, "​ICI'​s 'Worldwide Regulated Open-​Fund Assets and Flows, First Quarter 2021' release shows that money fund assets globally rose by $​164.​6 billion, or 2.​0%, in Q1'​21 to $​8.​479 trillion. The increase was driven by big jumps in U.​S. and Chinese money market fund assets. But European assets plunged. MMF assets worldwide increased by $​791.​4 billion, or 10.​3%, in the 12 months through 3/​31/​21, and MMFs in the U.​S. now represent 53.​0% of worldwide assets.'"

The piece continues, "​According to Crane Data'​s analysis of ICI'​s '​Worldwide' fund data, the U.​S. sustained its position as the largest money fund market in Q1'​21 with $​4.​497 trillion, or 53.​0% of all global MMF assets. U.​S. MMF assets increased by $​163.​6 billion (​3.​8%) in Q1'​21 and increased by $​159.​5 billion (​3.​7%) in the 12 months through March 31, 2021. China remained in second place among countries overall. China saw assets increase $​156.​4 billion (​12.​7%) in Q1, to $​1.​390 trillion (​16.​4% of worldwide assets). Over the 12 months through March 31, 2021, Chinese assets have risen by $​230.​5 billion, or 19.​9%."

MFI also includes the News brief, "MMF Assets Drop Below $​5.​0 Trillion in June." It says, "Crane Data shows money funds falling by $​73.​0 billion in June to $​4.​991 trillion. YTD, assets are up $​271.​3 billion, or 5.​7%. ICI'​s 'Money Market Fund Assets' shows MMFs down 4 weeks in a row to $​4.​53 trillion."

Another News brief, "MMF Expenses Hit Record Lows," tells readers, "Charged expense ratios fell to a new low of 0.​​06% in May. (​Our June 30 numbers will be posted tomorrow in the revised MFI XLS.) We estimate that annualized revenue for money funds has declined from $​9.​324 trillion on 5/​31/​20 to $​2.​125 trillion on 5/​31/​21."

Our July MFI XLS, with June 30 data, shows total assets decreased $​73.​0 billion to $​4.​991 trillion, after increasing $​74.​0 billion in May and $​62.​2 billion in April, and jumping $​151.​0 billion in March. Assets rose $​30.​8 billion in February and $​5.​6 billion in January. Assets decreased $​6.​7 billion in December, $​11.​7 billion in November, $​46.​8 billion in October, $​121.​2 billion in September, $​42.​3 billion in August and $​44.​2 billion in July. Our broad Crane Money Fund Average 7-​Day Yield remained at record low 0.​01%, and our Crane 100 Money Fund Index (​the 100 largest taxable funds) remained flat at 0.​02%.

On a Gross Yield Basis (​7-​Day) (​before expenses are taken out), the Crane MFA and the Crane 100 both remained at 0.​07%. Charged Expenses averaged 0.​06% for the Crane MFA and 0.​06% for the Crane 100. (​We'​ll revise expenses tomorrow once we upload the SEC'​s Form N-​MFP data for 6/​30.) The average WAM (​weighted average maturity) for the Crane MFA and Crane 100 was 38 (​down one day from the previous month) and 38 days (​same as last month), respectively. (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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Over 30 comment letters have been posted in response to the European Securities and Markets Authority'​s (​ESMA'​s) "Consultation on EU Money Market Fund Regulation - Legislative Review." While we'​ll be reviewing and quoting a number of these in coming days, we'​ll pick one from one of the largest managers of European MMFs to start. The first comment says, "BlackRock appreciates the opportunity to respond to the questions raised by ESMA in its consultation on the review of the EU Money Market Fund Regulation (​MMFR). The short-​term markets experienced sharp stresses in March of 2020 because of COVID 19 and an overall flight to liquidity. This highlighted potential weaknesses in money market funds (​MMFs) and vulnerabilities in the surrounding short-​term market ecosystem. Such an unprecedented market-​wide event affords regulators and market participants the opportunity to draw conclusions from a live '​stress test' that can help improve the resilience of MMFs and the short-​term markets."

BlackRock'​s post tells ESMA, "In forming a clear view of the stresses on MMFs in March 2020, it is important to note first and foremost, that the experience of US and European MMFs was different; and again, within Europe, the dynamics varied across different fund types and currencies. While the extent of, and underlying reasons for, client redemptions differed, one universal observation shared by MMFs in the US and across Europe is that the short-​term credit markets were highly distressed, with bank dealer-​driven liquidity severely constrained."

It explains, "​The liquidity of the entire short-​term market ecosystem in the US improved quickly and dramatically upon the introduction of the U.​S. Federal Reserve'​s Money Market Mutual Fund Liquidity Facility (​MMLF) and other facilities which both provided bank dealers with a dedicated liquidity backstop and ensured any liquidity they provided to the market was capital neutral. In Europe, however, market interventions by the European Central Bank (​ECB) and Bank of England (​BoE) had a far more indirect effect; as a result, the European short-​term market ecosystem did not return to more normal liquidity conditions for months."

They comment, "​As noted in our recent ViewPoint 'Lessons from COVID 19: The Experience of European MMFs in Short-​Term Markets,' we recommend that policy makers look holistically at short-​term markets to identify areas for improvement rather than look at MMFs in isolation. We outline three areas for improvement: short-​term market structure; bank capital and liquidity rules; and MMF product regulation. It is our view that improvement in all three areas is essential to enable short term markets (​and in turn MMFs which provide the most transparent access to these markets) to respond effectively to potential future shocks of the magnitude of that experienced in March of last year."

BlackRock writes, "We appreciate that the subject of this consultation focuses on the final element of that holistic view: MMF product regulation and in particular on identifying potential vulnerabilities exposed by the COVID-​related market turmoil. We would summarise our input to this consultation around four key observations: 1. March 2020 was fundamentally a liquidity shock, and the primary policy question this should raise is whether or not MMFs' portfolios were positioned with sufficient levels of useable liquidity to navigate the situation.... 2. In situations where short-​term liquidity is insufficient to meet redemptions, MMFs need tools to manage any dilutive effect of selling longer-​dated securities to meet redemptions.... 3. With the possible exception of the rotation from prime MMFs into government MMFs observed in the US market and the (​less-​severe) spillover we saw in USD LVNAV funds, outflows were driven by investors' underlying cash and liquidity needs, not by investor confidence in the structural features of different types of MMFs.... [​and] 4. Beyond any specific reforms to money market funds, we believe that transparency can and should improve in short term markets where data about issuers, investors, and even some MMFs can be difficult to source for both market participants and public authorities."

They add, "We commend the structure of ESMA'​s request for feedback not just on the specifics of the policy options presented in the paper, but on the potential impact on investors and any broader macro implications of pursuing specific reforms. We believe these are incredibly important considerations and should be central to shaping future policy."

Finally, BlackRock states, "MMFs, because they are the most transparent point within the short-​term market ecosystem, are often seen as analogous to the entire investor base in short-​term markets, but this is not the case. There are a variety of other investor types who invest in these markets directly, and if the use case of MMFs is removed through regulatory reforms, it is likely that direct investment through investors' own in-​house treasuries would increase. This would result in more disaggregated, opaque markets, and less direct regulatory oversight over the investor base in the short-​term markets. And as direct investors would likely not be holding the same quantity and quality of overnight and short-​dated liquidity as a MMF would, in a future disruption in short-​term markets, a wide range of companies and market participants may have far greater difficulty raising cash than was actually experienced in March of last year. This could increase, rather than reduce, the potential need for public sector interventions to support market functioning."

In other news, Moody'​s Investors Service published the brief, "Financial Stability Board'​s proposals are credit negative for money market fund sponsors." They tell us, "On 30 June, the Financial Stability Board (​FSB) opened a consultation on policy proposals designed to make money market funds (​MMFs) less vulnerable to sudden withdrawals of client money and to make it easier for them to sell assets under stressed conditions. The FSB'​s proposals would make prime MMFs safer, but also raise questions about whether prime MMFs can remain a commercially viable fund product if the proposals are implemented. If prime MMFs were less commercially viable, it would be credit negative for their asset manager sponsors. The consultation will also explore the possibility of additional stress tests and measures to improve the functioning of commercial paper (​CP) and certificate of deposit (​CD) markets."

The report explains, "The FSB consultation is designed to encourage national authorities to consider ways of reinforcing MMFs that they have not yet used in practice.... It sets out a range of options that would either make MMFs more cash-​like, with an emphasis on preservation of capital and liquidity, or more investment-​like, with greater leeway for price variation and changes in redemption terms during times of stress. Some of the FSB'​s reform options aim to reinforce the sector by imposing redemption costs on investors or by improving MMFs' loss absorption capacity. Others would reduce MMFs' liquidity transformation or limit adverse '​threshold' effects, such as preemptive withdrawals as fund liquidity declines toward levels where redemption restrictions kick in. `​The FSB recommends that national authorities combine a mix of these policy options into a reform package that addresses all MMF vulnerabilities, selecting the combination most appropriate for their jurisdiction."

It states, "Many of these options would enhance MMFs' resilience during periods of stress, but would also make them less attractive to investors and sponsors. For example, measures such as swing pricing and minimum balances at risk would make MMF shares less liquid, potentially deterring some investors. They would also entail costly operational challenges that could in some cases make MMFs uneconomical for their sponsors. This would weigh particularly heavily on prime MMF funds because they invest in less liquid securities than government MMFs. A contraction of the prime MMF fund sector, a significant buyer of short-​term debt instruments, would have an adverse impact on short-​term funding markets. Nonpublic debt MMFs are particularly active buyers of CP and negotiable CDs. Euro-​denominated MMFs hold around 54% of euro-​denominated financial sector CP."

Moody'​s comments, "In this scenario, some prime fund investors would instead put money into government MMFs or in bank deposits, reducing the supply of short-​term debt funding for financial institutions and some corporates. Investors may also opt for less regulated and transparent short-​duration bond funds, which are also susceptible to runs that can cause stress in short-​term markets. One of the FSB'​s proposals is to reduce MMF exposure to less liquid assets such as CP and CDs. This would better align the average liquidity of MMF assets with their redemption terms. However, these securities account for a large share of prime MMFs' portfolios, and replacing them would reduce the funds' investment yield."

They add, "​The FSB separately suggests that MMF sponsors and regulatory authorities use stress tests to identify vulnerabilities in individual funds and in the sector as a whole. It also proposes measures, such as greater standardisation and increased transparency over volumes and pricing, designed to improve the functioning of CP and CD markets. The consultation closes on 16 August and the FSB will publish a final report in October." (​For more, see our July 1 Crane Data News, "FSB Policy Proposals for Money Fund Resilience; Broad Range of Options and the FSB'​s "​Policy Proposals to Enhance Money Market Fund Resilience".)

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Though the April 30 deadline is passed for responding to the SEC'​s "Request for Comment on Potential Money Market Fund Reform Measures in President'​s Working Group Report," a couple of submissions were posted in June. One of these is from Federated Hermes, who posted additional feedback, entitled, "Comment Letter Of Federated Hermes, Inc. On Structural Reforms To Mitigate Systemic Risk And The Root Causes Of The Liquidity Crisis Of March 2020." The letter from Chief Risk Officer Michael Granito explains, "I am writing on behalf of Federated Hermes ... to provide additional comments in response to the Report of the President'​s Working Group on Financial Markets, Overview of Recent Events and Potential Reform Options Report on Money Market Funds ... which was issued in December 2020. Federated Hermes has already provided detailed comments that respond to the specific policy options identified in the PWG MMF Report (​the 'First Federated Hermes Comment Letter) and are incorporated and restated herein by reference."

It continues, "In this comment Federated Hermes recommends structural reforms that address the root causes of the failure of critical funding markets in March 2020 and the consequent systematic risks. We propose: (​i) considerations relating to the Federal Reserve ('​Fed') posture for providing liquidity in stressed markets, as well as reforms to promote market-​making in stressed conditions; (​ii) amendments to rule 2a-​7; (​iii) reforms to the short-​term market structure itself that could improve liquidity in times of stress; and (​iv) considerations for balancing the SEC'​s statutory mandate with liquidity and financial stability concerns."

Granito writes, "Federated Hermes has been in the investment management business since 1955 and has more than 45 years of experience managing MMFs. During that period, Federated Hermes has participated actively in the money market as it developed over the years. Federated Hermes currently manages over $​400 billion in money market assets including registered domestic and offshore funds, private funds and state government-​sponsored local government investment pools ('​LGIPs') that invest in money market instruments. MMFs managed by Federated Hermes in the United States include U.​S. government MMFs, municipal MMFs and prime MMFs. As of year-​end 2020, over two-​thirds of the MMF assets managed by Federated Hermes were U.​S. government securities and less than 30% consist of commercial paper and other non-​government instruments. Federated Hermes also manages MMFs and other investment funds and accounts in Canada, Europe and Asia. In addition to MMFs, Federated Hermes manages accounts for institutional customers that invest in money market instruments."

The Executive Summary states, "At its inception in 1913, the Fed'​s original mission was to increase the money supply to support a growing economy, help develop the commercial paper market -- and even more importantly, to quickly supply liquidity to the economy to avert a panic. These objectives were to be achieved, or facilitated, through use of the discount window (​then Section 13(​2)) of the Federal Reserve Act ('​FRA') that could be responsive to the real time needs of the economy."

It tells us, "​The challenge today is that the discount window has fallen into disuse as a result of an associated stigma; and the Fed'​s predominant means of injecting liquidity in a crisis is the emergency lending power established in 1932 (​FRA Section 13(​3)). However, this tool is calibrated to deal with an already existing crisis, not prevent it. Thus, an origin of the problem lies in the construction of the relevant lending powers as emergency measures and not tools that can react in real time. For example, under Dodd Frank Act Section 1101, the Fed'​s emergency lending authority is no longer discretionary and independent of the Administration. Approval of the Secretary of the Treasury, with related documentation is, required. Similarly, after the 2008 financial crisis, the Fed introduced a broad array of capital, leverage and liquidity constraints on banks that have enabled them to withstand severe economic conditions. But those constraints have also curtailed a bank'​s ability to fulfill market-​making objectives in the stressed markets experienced in March 2020, thus limiting liquidity when it is most needed."

The summary also says, "Importantly, on March 15, 2020, the Fed announced constructive measures to encourage use of the discount window to stem the crisis, and additional measures to promote market-​making by bank broker-​dealers. On April 1, 2020 the Fed announced temporary amendments to the Supplementary Leverage Ratio ('​SLR'). However, these actions came weeks into the crisis and unnecessary damage had already been done. We recommend that the Fed make the amendments to the discount window permanent; and that the Fed critically examine and amend regulations that have curtailed market-​making, including the SLR. In addition, the Dodd Frank Act ('​DFA') Section 1105 defines the concept of a Liquidity Event, which broadly characterizes the conditions in February and March 2020. We recommend that the Fed consider the timely designation of a Liquidity Event, or similar concept, as: (​i) a means of alerting banks to respond to the real time needs of the markets by using these facilities; and (​ii), a potential threshold for temporary waiver of regulations that may hinder market-​making."

Under "Reforms to Rule 2a-​7," Federated comments, "The credit quality and liquidity levels of prime and tax exempt MMFs met or exceeded regulatory requirements during March 2020. Outflows from these funds in March 2020 resulted in significant part from 2014 MMF reforms that linked the 30% weekly liquid asset ('​WLA') test to board action on fees or gates. The Fed predicted this would trigger redemptions -- and it did. We recommend that the SEC delink the WLA test from required board action while continuing to empower (​and obligate) MMF boards to take actions on fees and/​or gates that are in the best interest of shareholders. We believe that an objective review of the data from and the events of March 2020 would result in the conclusion that no other reforms are necessary or appropriate."

The letter also urges, "Reforms To The Short-​Term Money Market Structure," explaining, "​The commercial paper ('​CP') market is unnecessarily fragmented. Today non-​financial corporate CP is traded on several electronic platforms (​e.​g., TradeWeb and BOOM). However, a large volume of the CP market is bank paper, where only the issuing bank makes a market. This comes at the expense of liquidity in the market, and ultimately, financial stability. The Fed and SEC should take steps necessary to broaden bank CP market-​making just as the market for non-​financial CP has evolved over time. Additionally, a further expansion of electronic venues would be to enable investors, issuers and broker/​dealers to all view and post bids and offers -- an '​all to all' platform. We urge the SEC and Fed to convene a working group of private market stakeholders to arrive at a model that provides greater transparency and liquidity, particularly in periods of market stress. Recent examples of on-​going dialogs between the industry with the Fed include, particularly since 2007 – 2009, frequent NY Fed inquiries on market conditions, the increased usage of cleared repo (​through FICC) as opposed to bilateral settlement to reduce the risk of collateral fire sale, and a dialog on the Fed'​s reverse repo facility -- particularly on mechanics of the program."

Federated'​s letter states, "Prime and tax-​exempt money market funds ('​MMFs') have been among the most successful financial products in history providing investors with over $​200 billion in returns in excess of bank deposit rates while significantly lowering borrowing costs for corporations and municipalities. Just two MMFs have ever '​broken the buck', with zero cost to taxpayers, and investors recovering over 96% percent of their principal in one case and over 99% of their principal in the other. Over this same period, over 3,​600 federally insured depositories have failed costing taxpayers over $​180 billion, which should provide some helpful perspective for those who assert that it'​s MMFs that have '​structural vulnerabilities' or needed '​taxpayer bailouts'."

They continue, "To be clear, we understand that mitigating the on-​set of and preventing the damage from a financial crisis are daunting responsibilities that requires constant vigilance. It is understandable that one response of the Fed would be to advance macroprudential regulation to enable banks or other financial institutions to withstand significant, even catastrophic, events without Fed intervention. However, there is a point at which this imposes too great a cost on business and the economy; and the Fed must ultimately step in to address a true crisis. This is particularly relevant in light of the Fed'​s current realization that the discount window is an essential near-​real time tool for providing liquidity and preventing panic conditions; and that banking reforms that limit market-​making in stressed conditions can be re-​examined."

The letter elaborates, "Nonetheless, as happened after the 2008 crisis, it is likely that the SEC will be pressured to adopt a financial stability mandate that would ultimately come at the expense of its actual statutory mandate; and, among other things, lead to reforms to 2a-​7 in excess of what is required. We believe that any SEC action must remain true to its statutory mandate of investor protection, efficiency and capital formation. Successful execution of this mandate is what has created the foundation of financial stability in the US capital markets; and it should not be diluted to mitigate the risk of another agency failing to timely fulfill its own statutory mandate."

It tells us, "There is however an overlap of the SEC'​s mandate with financial stability: liquidity, which is essential for orderly markets. Within the SEC, the Division of Trading and Markets particularly has this responsibility. The SEC'​s regulation of fixed income markets, including alternative trading systems (​ATS, or electronic venues), has promoted market efficiency and lowered trading costs in normal periods, but this has not necessarily translated to improved liquidity in turbulent periods. The SEC'​s Division of Investment Management has taken steps to enhance the liquidity risk management of mutual funds generally, and MMFs in particular, in recent years. We suggest that the SEC focus greater attention on regulations that can enhance liquidity in fixed income and short-​term markets in crisis periods. More generally, we recommend that the Division of Trading and Markets undertake a thorough review of money markets to identify additional means of improving liquidity during stressed market periods."

The PWG comment letter'​s Conclusion says, "The March 2020 liquidity crisis stemmed from the worst pandemic in 100 years and a concurrent global economic shutdown that was deeper, more sudden and more synchronized than the Great Depression. Disruption to the money markets only came after deep contractions in equity and bond markets and even pronounced illiquidity in segments of the U.​S. Treasury market. In considering further reforms to MMFs, it must also be noted that the credit quality and liquidity levels of prime and tax exempt MMFs met or exceeded regulatory requirements during the duration of the crisis. Outflows from these funds were exacerbated by a defect in the 2014 MMF reforms that linked the 30% WLA test to board action on fees or gates. The Fed predicted this would trigger redemptions -- and it did. There are no additional reforms needed for these funds, other than to correct that defect."

Finally, it adds, "Both the Fed and the SEC should address a root cause of financial contagion in the March 2020 crisis -- a widespread and sharp drop in liquidity across markets, particularly in the funding markets that are vital to the functioning of the capital markets. We recommend that both agencies examine regulations that may stifle rather than promote liquidity and market-​making in crisis periods. In recognition of the Fed'​s unique role, while its actions in 2020 quickly stemmed the market turmoil when enacted in mid-​March, significant damage had already, and unnecessarily, been done. We recommend that the Fed consider steps be more proactive in preventing panics -- in line with a central feature of its original statutory mission. A helpful step would be to make the very effective measures on use of the discount window announced on March 15, 2020 permanent; and to similarly relax regulations that curtail market-​making in stressed market conditions. We suggest that the Fed also consider making timely use of the Liquidity Event, or similar designation, defined within DFA, as a means of alerting banks to make use of the ensemble of facilities available to them to support liquidity and market-​making. We believe that these actions would significantly stem a cycle that neither industry nor the Fed want -- the creation of ad hoc Section 13(​3) special facilities."

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The ICI'​s latest weekly "Money Market Fund Assets" report shows MMFs falling sharply for the fourth week in a row, following four straight weeks of increases. The release says, "Total money market fund assets decreased by $​19.​72 billion to $​4.​53 trillion for the week ended Wednesday, June 30, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $​16.​75 billion and prime funds decreased by $​3.​70 billion. Tax-​exempt money market funds increased by $​730 million." While ICI'​s weekly "Assets" release shows money fund assets down by $​85 billion over the past 4 weeks, they'​re still up by $​230 billion, or 5.​4%, year-​to-​date in 2021. Inst MMFs are up $​325 billion (​11.​7%), while Retail MMFs are down $​95 billion (-​6.​3%).

ICI'​s stats show Institutional MMFs decreasing $​17.​8 billion and Retail MMFs decreasing $​2.​0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​3.​950 trillion (​87.​2% of all money funds), while Total Prime MMFs were $​483.​9 billion (​10.​7%). Tax Exempt MMFs totaled $​92.​7 billion (​2.​1%). Over the past 52 weeks, money fund assets have decreased by $​128 billion, or -​2.​8%, with Retail MMFs falling by $​127 billion (-​8.​2%) and Inst MMFs falling by $​1 billion (-​0.​0%). (​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 $​1.​95 billion to $​1.​43 trillion. Among retail funds, government money market fund assets decreased by $​651 million to $​1.​12 trillion, prime money market fund assets decreased by $​973 million to $​228.​63 billion, and tax-​exempt fund assets decreased by $​326 million to $​80.​83 billion." Retail assets account for just under a third of total assets, or 31.​6%, and Government Retail assets make up 78.​4% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds decreased by $​17.​77 billion to $​3.​10 trillion. Among institutional funds, government money market fund assets decreased by $​16.​10 billion to $​2.​83 trillion, prime money market fund assets decreased by $​2.​73 billion to $​255.​29 billion, and tax-​exempt fund assets increased by $​1.​06 billion to $​12.​62 billion." Institutional assets accounted for 68.​4% of all MMF assets, with Government Institutional assets making up 91.​3% of all Institutional MMF totals.

In other news, we wrote yesterday about the Financial Stability Board'​s "Policy Proposals to Enhance Money Market Fund Resilience: Consultation Report." Today, we excerpt from more of the 67-​page report, focusing this time on the FSB'​s "​Policy proposals to enhance MMF resilience." They explain, "This section presents a set of policy options that aim to address MMF vulnerabilities. To assess the relative merits of these options in enhancing the resilience of MMFs and STFMs more generally, the section considers their likely effects on the behaviour of MMF investors, fund managers and sponsors; and their implications for the underlying markets, including through analysis of potential substitutes for MMFs to which investors and issuers could turn to. The assessment framework in Annex B sets out in more detail the structured approach used to arrive at a comprehensive assessment of the effects of each option."

The FSB writes, "​As noted in the previous section, MMFs are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. A number of mechanisms could be used to address these MMF vulnerabilities -- they include imposing on redeeming investors the cost of their redemptions; absorbing losses; reducing threshold effects; and reducing liquidity transformation. Some of these proposals were considered in previous MMF reforms, while other proposals are novel."

They tell us, "In developing the policy options within this report, the FSB has sought to group options according to the mechanism through which they aim to mitigate identified MMF vulnerabilities, although some policy options may affect resilience through more than one mechanism." Their "Representative" options include: "Swing pricing, Minimum balance at risk (​MBR), Capital buffer, Removal of ties between regulatory thresholds and imposition of fees and gates, Removal of stable NAV, Limits on eligible assets and Additional liquidity requirements and escalation procedures."

The FSB report continues, "Under each mechanism, a few representative options have been identified and are described in detail. They are accompanied by other options that are variants or extensions of the representative options. The representative options have been chosen based on: (​i) their impact on the resilience of MMFs and financial stability more broadly; (​ii) their scope (​i.​e. whether the discussion of the representative option would cover many points relevant to the variant options as well); (​iii) operational and other considerations (​e.​g. impact on MMF industry) that may affect the feasibility of implementing these options; and (​iv) their inclusion in recent reviews of MMF reform options in some jurisdictions. These representative options are presented as possible ways a jurisdiction could seek to mitigate the vulnerabilities it has identified within its sector. Nevertheless, the variants may work better in some jurisdictions, depending on the specific circumstances and features of the market."

It states, "Assessing the likely impact of these policy options on the broader functioning of STFMs also requires analysis of potential substitutes for MMFs to which borrowers and investors could realistically turn to, should the implementation of these options lead to a withdrawal of MMFs from STFMs or make MMFs unattractive for investors."

The report comments, "Even if substitutes for MMFs are readily available, `​the impact of additional MMF restrictions on the aggregate supply and demand for financial intermediation is uncertain, particularly where these restrictions may lead to a shrinkage of the non-​public debt MMF sector. On the one hand, as noted above, a substantial shrinkage of non-​public debt MMFs in the US following previous reforms did not cause a significant reduction in the availability of short-​term funding, as borrowers found alternative sources of funding. On the other hand, the reach of some alternatives may be limited; for example, while some investors can sidestep MMFs by holding assets directly, others -- such as retail investors -- may not, and direct investment would not readily meet some of the objectives of MMF investors such as diversification. This would mean issuers would depend on other types of investors to scale up their lending and borrowing costs might rise, even if only on a transitory basis."

It suggests, "Potential substitutes to non-​public debt MMFs that offer cash management functions for investors include bank deposits and public debt MMFs. These products generally exhibit greater resilience and less susceptibility to runs than non-​public debt MMFs. For example, prudential regulation and access to central bank liquidity in recent decades have made bank runs more isolated than runs on non-​public debt MMFs. And public debt MMFs, particularly those denominated in USD, have attracted large inflows during episodes of stress, even as non-​public debt MMFs experienced large net redemptions. However, the attractiveness to investors of public debt MMFs denominated in currencies other than USD is currently limited."

Finally, the FSB paper adds, "​In contrast, investment-​like substitutes exhibit varying degrees of resilience compared to non public debt MMFs. In certain jurisdictions, investors may decide to use short-​term bond funds as an alternative to MMFs. The portfolio risks of these types of funds typically are greater than those for MMFs and they also exhibit liquidity mismatch if they allow for daily redemption of their shares, but their limited usage for cash management may offset some of these risks. Direct investment is another potential substitute available to some MMF investors, particularly institutional investors. Direct investment does not offer liquidity transformation, as investors directly bear the cost of liquidating assets, so this substitute is likely more resilient than MMFs."

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The Financial Stability Board (​FSB) published, "Policy Proposals to Enhance Money Market Fund Resilience: Consultation Report," a 67-​page report that summarizes global regulators' views on potential money market fund regulatory reforms. The press release, subtitled, "Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector," says, "​The FSB'​s holistic review of the March 2020 market turmoil highlighted structural vulnerabilities in MMFs and related stress in short-​term funding markets. MMFs are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. These features can make individual MMFs, or even the entire MMF sector, susceptible to runs, and may also give rise to system-​wide vulnerabilities. The policy options in the report aim to address these vulnerabilities and are intended to inform jurisdiction-​specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by the International Organization of Securities Commissions (​IOSCO). Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector."

It explains, "​The policy options are grouped according to the main mechanism through which they aim to enhance MMF resilience -- namely, to: impose on redeeming investors the cost of their redemptions; absorb losses; reduce threshold effects; and reduce liquidity transformation. The report assesses the likely effects of each option on the behaviour of MMF investors, fund managers and sponsors, as well as their implications for the underlying markets. `​The consultation report also sets out considerations on how different policy options could be selected and combined to address all the vulnerabilities arising from different types of MMFs. The optimal combination should take account of jurisdiction-​specific circumstances and policy priorities, as well as cross-​border considerations including to prevent regulatory arbitrage that could arise from adopting divergent approaches across jurisdictions."

The release adds, "Policies aimed at enhancing the resilience of MMFs could be accompanied by additional reforms in two areas: (​i) policies to support robust risk management by fund managers and risk monitoring by authorities; and (​ii) measures to improve the functioning of the underlying short-​term funding markets. Responses to the public consultation should be sent to fsb@​fsb.​org by 16 August with 'MMF policy proposals' in the subject line. All responses will be published on the FSB website unless respondents request otherwise. The final report will be published in October 2021."

The full report'​s "Executive Summary" explains, "This consultation report sets out policy proposals to enhance money market fund (​MMF) resilience, including with respect to the appropriate structure of the sector and of underlying short-​term funding markets (​STFMs). The proposals form part of the FSB'​s work programme on non-​bank financial intermediation and are intended to inform jurisdiction-​specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by IOSCO. Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector."

It tells us, "​MMFs are open-​ended investment funds that are managed with the aim of providing principal stability, daily liquidity, risk diversification and returns consistent with prevailing money market rates. MMFs are not homogeneous and their structure and risk characteristics differ across jurisdictions. MMFs are important providers of short-​term financing for financial institutions (​especially dollar funding for banks headquartered outside the US), corporations, and governments. They are also used by retail and institutional investors to invest excess cash and manage their short-​term liquidity needs. While MMFs invest mostly in short-​term debt instruments, their shares are redeemable on demand and many investors tend to treat MMFs as cash-​like. Non-​public debt MMFs are particularly active in the commercial paper (​CP), negotiable certificates of deposit (​CDs) and repo markets. Secondary markets for CP and CDs are generally not liquid as investors, including MMFs, tend to buy and hold these instruments to maturity."

The FSB report continues, "MMFs are subject to two broad types of vulnerabilities that can be mutually reinforcing: they are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. The first type of vulnerability arises from the fact that MMFs engage in liquidity transformation, are used for cash management by investors, and are exposed to credit risk. In addition, regulatory thresholds for some MMFs may cause investors to pre-​emptively redeem to avoid the consequences of a fund crossing those thresholds (​cliff effects), while certain types of investors (​notably institutional investors) may amplify redemption risks. Taken together, these features can contribute to a first-​mover advantage for redeeming investors in a stress event and thus make individual MMFs, or even the entire MMF sector, susceptible to runs. The second type of vulnerability arises because some MMFs hold financial instruments that have limited liquidity, even under normal market conditions. In practice, these two types of vulnerabilities have been significantly more prominent in non-​public debt MMFs."

They write, "Some features of MMFs and their uses may also give rise to system-​wide vulnerabilities. For example, similarities in portfolios may present contagion risks among MMFs, as strains on one fund may affect others that hold similar assets. Common features in fund structure and regulation, such as thresholds, may cause investors to react to news about one fund by redeeming shares from other funds. The usage of MMFs for cash management and specialised financial functions, such as to meet margin calls, may add a common component to MMF flows that exacerbates stress. The susceptibility of non-​public debt MMFs to sudden and disruptive redemptions in episodes of stress has been evident in a number of jurisdictions and triggered by different shocks, most notably in the US and Europe in September 2008 and March 2020."

The FSB states, "The report considers the likely effects of a broad range of policy options to address MMF vulnerabilities, by examining how these options would affect the behaviour of MMF investors, fund managers and sponsors, as well as the options' broader effects on short-​term funding markets, including through impacts on the use of potential substitutes for MMFs. Policy options are grouped according to the main -- though not necessarily the only -- mechanism through which they aim to enhance MMF resilience. Representative options under each mechanism include: swing pricing (​to impose on redeeming investors the cost of their redemptions); minimum balance at risk and a capital buffer (​to absorb losses); removal of ties between regulatory thresholds and imposition of fees/​gates and removal of the stable net asset value (​to reduce threshold effects); and limits on eligible assets and additional liquidity requirements and escalation procedures (​to reduce liquidity transformation). Other options that can be considered as variants or extensions of the representative options are also presented in the report."

They comment, "​Two sets of considerations are relevant for jurisdictions when selecting MMF policy options. The first is about how to prioritise specific options in the context of identified vulnerabilities. Important factors to consider will be existing regulations, the size and structure of the MMF sector in the jurisdiction, and the use of MMFs by different types of investors and borrowers in STFMs. These factors will affect the need for certain options across jurisdictions and their effectiveness. Currency denomination is another important consideration in jurisdictions with MMFs offered in foreign currencies. The wider impact on the financial system will depend on how the reforms will affect the linkages between MMFs and other market participants, as well as on the types of MMF alternatives available to investors and borrowers in STFMs, including on a cross-​border basis."

The FSB confesses, "A single policy option on its own may not address all vulnerabilities. Accordingly, the second set of considerations is how authorities can combine options to address all MMF vulnerabilities prevalent in the jurisdiction. A natural starting point is to consider tools that authorities and MMFs have at their disposal, but have not used in practice. In terms of new policies, certain measures may be straightforward to implement and broadly compatible with all options, while others may be incompatible with each other. Another possible consideration may be the intended functions of MMFs -- for example, whether the goal of enhancing resilience is to be achieved by making them more cash-​like (​i.​e. aiming at preservation of capital and liquidity for investors) or more investment-​like (​i.​e. allowing greater price variability or changes in redemption terms in stress)."

Finally, they add, "​Policies aimed at enhancing the resilience of MMFs could be accompanied by additional reforms in two areas. The first involves policies such as stress testing and transparency requirements on STFMs and their participants. While not directly addressing MMF vulnerabilities, such policies can support robust risk management by fund managers and risk monitoring by authorities. The second area involves measures that aim at improving the functioning of the underlying STFMs. The structure of the CP and CD markets makes them susceptible to illiquidity in times of stress. This highlights the need for policy reforms to enhance MMFs' own resilience, as those funds cannot rely on liquidity in these markets to raise cash to meet redemptions in stress. At the same time, even in jurisdictions where MMFs are large investors in CP and CDs, MMF reforms by themselves will not likely solve the structural fragilities in STFMs. Authorities might therefore consider adopting measures to improve the functioning of CP and CD markets. While useful in their own right, it is not clear that such measures would change the limited incentives of market participants to trade or of dealers to intermediate, particularly during stress periods."

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