Late last week, at the "Thirteenth Annual International Banking Conference" in Chicago, hosted by the Federal Reserve Bank of Chicago, Paul Volcker, Chairman of the U.S. President's Economic Recovery Advisory Board and former Chairman of the Federal Reserve System made a couple of comments of interest to money fund providers and investors. Volcker said, "The G30's going to put out a report [soon]" (see our Jan. 19, 2009 Crane Data News "Group of Thirty Recommendation Poses Threat to Money Market Funds"). Volcker also said, "I think ... it's important to make a distinction between those institutions ... you want to protect and those you don't.... The commercial banks ... were diminished in relative importance as an immediate provider of credit. You add up the people holding credit in the United States and they used to be at 60-65% but now they're at 30-35%.... Another institutional change that hasn't gotten much attention, is money market mutual funds, [which] have encroached so much on the banking market. They are nothing so much as a regulatory arbitrage, which serves no other purpose than ... handling payments and short-term paper, which is a commercial banking function. Money market mutual funds didn't have to keep capital, they didn't have to be regulated [by banking regulators], and so on... But I think there is something special about banks, and if you're going to regulate this system you have to recognize that. They are central."

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