Daily Links Archives: November, 2012

A press release entitled, "SunGard Study Reveals Shifting Attitudes toward Cash Investments says, "SunGard has completed a cash management study that highlights corporate treasury professionals' changing attitudes toward cash investments driven by economic, regulatory and risk concerns. The study examines their outlooks on strategic cash holdings, asset allocation, investment policies and transaction execution. Following a similar survey conducted in 2011, this latest study identifies trends and developments over the last twelve months, such as an increased surplus of cash and a greater proportion of cash invested in money market funds (MMFs) by some companies as compared to 2011 survey results. In addition, an intensified focus on market issues, such as the Eurozone crisis, regulatory changes and counterparty risk, are rising to the top of treasurers' list of priorities compared to the previous year. Responses were collected from more than 200 corporations globally across a wide range of industries, and about 20 percent representing financial institutions. More than 50 percent of respondents were from companies headquartered in North America, 32 percent in Europe, and the rest in the Asia Pacific region.... Key findings of the report include the following: Some companies are growing their cash reserves, with 37 percent of companies increasing the amount of surplus cash over the past twelve months. Some companies are increasing their shares of cash investments in MMFs. Those using short-term MMFs hold an average of 50 percent of their cash in these funds -- representing an increase of more than 11 percent from 2011. Although only 9 percent of companies surveyed invest in MMFs that have a variable net asset value (NAV), these companies hold an average of 36 percent of their cash in these instruments, compared to only 4.5 percent in 2011 -- reflecting a change to an investment strategy more in line with regulatory preference for variable funds. Forty-three percent of respondents said they use an online trading portal for cash investments -- an increase of 6 percent over 2011." Vince Tolve, vice president of SunGard's brokerage business, comments, "Although concerns regarding credit risk and liquidity remain important factors, regulation in the US and Europe has emerged strongly as a concern as lawmakers focus on enhancing the resilience of funds to extreme market shocks. An immediate issue, however, is the expiration of FDIC guaranteed non-interest bearing accounts at the end of this year. Many companies that have used insured bank deposits will need to find alternative repositories for cash. The growing use of online trading portals will provide potential for enhanced visibility, auditability, analytics and operational efficiency as corporate treasurers embark on making new investment decisions."

A press release entitled, "Cachematrix Now Provides Banks the Ability to Offer Their Corporate Clients Direct, Fully Disclosed Money Fund Investing through its CacheDirect Portal," says, "Cachematrix, the leading provider of money market fund, bank product trading and sweep technology for banks and financial institutions, announced today that it has launched CacheDirect, the direct to fund trading model that allows bank corporate clients direct and fully disclosed money fund investing and settlement. With growing demand by corporate clients for direct fund settlement and fully disclosed accounts Cachematrix has developed CacheDirect, a portal solution that is licensed to banks that gives them the ability to allow their corporate customers to trade fully disclosed and settle directly with top institutional funds via a customized, bank branded portal." See also, Fitch says "Rating Cash Pools Using MMF Criteria". The ratings agency writes, "Fitch Ratings is receiving increased numbers of enquiries about assigning ratings to managed cash pools or mandates. Fitch's Global Rating Criteria for Money Market Funds is applicable to these pools or mandates, with adjustments for the treatment of liquidity. Fitch has published specific guidelines it considers consistent with funds, pools or mandates rated at the 'AAAmmf', 'AAmmf' and 'Ammf' rating levels.... The rating of a cash pool is subject to the same process and surveillance as the rating of an open-ended MMF. Cash pool ratings may be assigned on a public or private basis. Managed cash pools and mandates are typically managed on behalf of a single, or infrequently, small group of investors. The interest for such products is growing in a low yield environment where the cost of holding sufficient liquidity to mitigate commingling risk is relatively high, particularly if the investor does not require daily liquidity."

The Wall Street Journal writes "Extension of FDIC Program Gains Key Backer but Hurdles Loom". It says, "The top Democrat in the U.S. Senate is backing an extension to an FDIC program that provides unlimited guarantees for $1.4 trillion in bank deposits. Banks, particularly small ones, have been scrambling to get lawmakers to continue a Federal Deposit Insurance Corp. program that provides unlimited guarantees for certain zero-interest deposits used by companies for payroll and other routine transactions. The FDIC normally provides $250,000 in insurance. The program is set to expire at the end of the year. Many small banks, worrying the money is likely to flow out of their institutions to large banks or big money-market mutual funds, have been pressing Capitol Hill to extend the program. Larger banks, many of which offer money-market funds as well as traditional deposit accounts, haven't taken a public position on the issue. But legislation introduced Monday by Senate Majority Leader Harry Reid (D., Nev.) would extend the FDIC's Transaction Account Guarantee program for two years. The bill is expected to be debated on the Senate floor over the next week, an aide said, declining to comment further." See the original mention in The Hill "Reid introduces bill extending federal guarantees for bank accounts" and the full text of the bill here.

FX-MM writes "J.P. Morgan Asset Management’s Asian money market funds exceed $10 billion in assets". The article says, "J.P. Morgan Asset Management has today announced that its local currency institutional money market funds in Asia now total more than $10bn equivalent in assets. J.P. Morgan Asset Management was the first to pioneer AAA-rated money market funds both in China in Chinese Yuan (CNY) in 2005 as well as in Singapore Dollars in 2007. In 2007, it also launched what is now the only AAA-rated money market fund in Japan in Japanese Yen (JPY) and has managed an AAA-rated money market fund in Australian Dollars since 2010. In October, our landmark JPY government liquidity fund was launched in Japan as both the first institutional money fund restricted to government risk and the first to offer T+0 settlement in Japan for subscriptions and redemptions. The current suite of seven mutual funds in Asia has more than doubled in size since July 2010. The fastest growing local currency fund in 2012 has been the onshore Chinese Yuan money market fund, which has added more than CNY 8 billion ($1.25bn) in assets during the year, closing at CNY 20.9bn ($3.3bn) on October 31, 2012. The fund accounts for 90% of assets in AAA-rated money market funds in China, and with a growth rate above 33% year to date, it has outpaced the 22% increase across the entire money fund industry in China." The release quotes Travis Spence, Head of Global Liquidity, Asia Pacific, "Corporate cash levels are growing faster in Asia than other regions and treasurers are also holding more local currencies. China is a good example, where we see some companies delaying dividends for future use, while benefiting from higher investment returns onshore. Treasurers in Asia are looking for alternatives to deposits that provide diversification with similar levels of liquidity and security, but the options have historically been limited. The size of a money market fund is an important consideration for institutional investors, so we are excited to have crossed this milestone in Asia. It is a solid foundation that we expect will continue to grow rapidly."

The latest weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets increased by $26.63 billion to $2.602 trillion for the six-day period ended Tuesday, November 20, the Investment Company Institute reported today. Taxable government funds increased by $6.53 billion, taxable non-government funds increased by $16.90 billion, and tax-exempt funds increased by $3.20 billion. Assets of retail money market funds increased by $12.64 billion to $902.90 billion.... Assets of institutional money market funds increased by $13.99 billion to $1.699 trillion." See also, ICI's "Focus on Funds" (video), "FSOC Action on Money Market Funds Fails to Advance the Debate". Finally, see The Economist's "Running from the shadows". It writes, "Money-market funds are the quintessential "shadow banks": companies that mediate between savers and borrowers, just as banks do, but without the government guarantees or oversight of banks.... The FSOC invited the industry to submit its own solutions. In the meantime, it will ask the SEC to adopt its recommendations. Should it refuse, the FSOC could implement them with other powers. One option that's clearly off the table is another Treasury guarantee like that in 2008: Congress has since outlawed it."

Federated writes "FSOC Proposal Recommends SEC Make Changes to Money Market Fund Regulations." They comment, "On Nov. 13, 2012, the Financial Stability Oversight Council (FSOC) issued a request for public comment about a proposal to recommend that the Securities and Exchange Commission (SEC) adopt changes in its money-market fund (MMF) regulations. A summary of the proposal is below. Importantly, the public, including investors and issuers, will have 60 days after the release is published in the Federal Register to file written comments with the FSOC. The FSOC's current action does not change MMF regulations, nor does it require the SEC to change MMF regulations. The request was issued under Section 120 of the Dodd-Frank Act, which permits the FSOC to make recommendations to a "primary financial regulatory agency," in this case, the SEC, to make changes in its own regulations governing nonbank financial institutions under its jurisdiction. The FSOC's asks for public comments on three specific recommendations that it may propose to the SEC. After the 60-day comment period ends, the FSOC will review comments and then may vote on whether to formally issue specific recommendations to the SEC. The FSOC may decide to change the recommendations, request further comment, or not issue the recommendations. If the FSOC makes recommendations to the SEC, the SEC, within 90 days after receiving the recommendations, must decide either to propose the recommendations in its own rulemaking proceeding, or advise the FSOC in writing why it has determined not to follow its recommendations. If the SEC decides to propose the FSOC's recommendations in its own rulemaking proceeding, the SEC will then draft a proposing release, vote on it in a public meeting (at which a majority of the SEC commissioners must approve it), publish a notice in the Federal Register, accept comments from the public during a specified comment period (generally 60 days), analyze the comments, conduct an economic analysis required by statute, and then decide, based on its analysis of the comments and other data, whether to adopt the proposal, reject it, or change it. A vote of a majority of the commissioners is required for the adoption of a rule. If the SEC decides not to propose the changes recommended by the FSOC, it must submit a report to the FSOC explaining why. The FSOC then must file a report with Congress explaining the recommendation and why it was not adopted. According to Treasury Secretary Geithner and other FSOC members, if the SEC independently issues a rule proposal that they believe is acceptable, then the FSOC would no longer pursue the proposed recommendations."

Yesterday, a WSJ Editorial entitled, "Liberating Money Funds", writes, "Judging by the long faces on money-market fund lobbyists last week, we're starting to think Washington might reform an industry that received a federal rescue in 2008. On Tuesday, the federal Financial Stability Oversight Council proposed one rule change that would protect taxpayers in the next crisis, plus two others that may not. The council's "Alternative One" for reform is the best and the simplest: Allow the share prices of money-market mutual funds to float, like the prices of other funds. Since money funds are not insured deposits, investors should understand that they are buying securities that can lose value. The industry has been allowed to employ a novel accounting technique that lets money funds report a fixed value of $1 a share, even if the underlying assets are worth slightly less.... And politicians will be less likely to see a price decline as a cataclysm requiring an industry-wide guarantee like they provided in 2008. The council's other two reform options require funds to maintain capital buffers to absorb losses. One option has a tiny capital buffer of 1% but demands that large investors keep 3% of their account "at risk" by imposing a 30-day delay on withdrawals. The other option raises the capital buffer to 3% but lets shareholders drain their accounts at any time. These last two options approach bank-style regulation but with less capital than will be required of banks. The customer would continue to receive a confusing message. Is this a security that can lose money or is it really a bank account?"

Crane Data President Peter Crane will join to Join StoneCastle Cash Management Brandon Semilof and M.D. Sass Hugh Lamle to present a comlimentary AFP Webinar entitled, "Managing Cash, Liquidity & Risk: What Now? Beyond Unlimited FDIC Insurance" on Wednesday, November 28, from 3:30-4:30pm (EST). The description says, "In response to the scheduled expiration of TAG and money fund reform, this webcast is an excellent forum for treasurers to discuss the current state of cash management. The webcast will include the most up to date news and insights regarding the expiration of unlimited FDIC insurance and Money Fund Reform. The session will also introduce alternative cash management vehicles and strategies being utilized by treasurers."

The European Money Fund Summit, a new conference launched by German conference producer IQPC and geared towards European and global providers of money market mutual funds, takes place Monday and Tuesday (Nov. 19-20) in Frankfurt, Germany at the Fleming's Hotel Frankfurt. Crane Data has been assisting IQPC with marketing and the agenda, and our Peter Crane will be co-hosting the event along with Federated Investors' Debbie Cunningham. The conference brochure explains, "The European Money Market Mutual Fund landscape is challenging at the moment to say the least. A shifting regulatory landscape, ultra-low and zero interest rates, and concerns over European banks and credit make managing and marketing money funds more difficult than ever. But opportunities remain in the money markets for the bold. Can money market funds domiciled in Europe and denominated in Europe survive in the current rate and regulatory environment? While all is not lost, the challenges are myriad.... Join us in Frankfurt to learn more about these issues and to discover strategies for investing and positioning products in various European markets." In other news, ICI released its latest "Money Market Mutual Fund Assets." It says, "Total money market mutual fund assets decreased by $2.54 billion to $2.575 trillion for the week ended Wednesday, November 14."

Fitch Ratings published "Money Fund Liquidity: Regulation Versus Risk Aversion". It says, "Since the U.S. credit crisis, the 10 largest U.S. prime money market funds (MMF) have significantly increased their allocations to liquid assets. At the end of 2006, liquid assets accounted for roughly 20% of total MMF assets.... As of end-September 2012, liquid assets represented about 45% of MMF assets. A meaningful portion of this increase is attributable to SEC rule changes implemented in 2010, which among other restrictions place a 30% floor on the level of liquid assets available in one week or less.... Additionally, the sizable liquidity buffer that funds are holding beyond these new regulatory minimums also reflects ongoing MMF risk aversion. Once market volatility eases, Fitch expects funds will, in turn, seek to reduce these buffers to take advantage of relatively higher-yielding, longer-duration investment opportunities. Financial market regulators have been focusing on MMF liquidity, given the importance of liquid assets in enabling money funds to weather periods of market volatility, to meet investor redemption requests, and to provide confidence in the sector as a whole. In particular, some SEC commissioners have called for further research on the extent to which 2010 Rule 2a-7 amendments have enhanced fund liquidity since their formal proposal in July 2009 and subsequent approval in February 2010."

The Investment Company Institute comments on the release of FSOC's money fund proposals, "Today, the Financial Stability Oversight Council (FSOC) met to discuss money market fund regulation. ICI and the Chairman of the ICI Money Market Working Group made the following statements in response. F. William McNabb III, chairman and CEO of Vanguard and chairman of the ICI Money Market Working Group, comments, "The fund industry has engaged consistently on this issue for more than four years, offering ideas and detailed analysis. It's deeply disappointing that the Council has proceeded without giving due weight to the views of fund sponsors, investors, and the issuers who depend upon money market funds for vital financing." ICI President & CEO Paul Schott Stevens says, "Regrettably, today's action by the FSOC fails to advance the debate over how to make money market funds more resilient in the face of financial crisis. The Council apparently is proposing to send back to the Securities and Exchange Commission (SEC) the very same concepts that a majority of the Commission's members declined to issue for public comment in August. The process that the FSOC is following is deeply flawed. The SEC is the appropriate agency to evaluate additional money market fund reforms. Only the SEC has the necessary expertise as the regulator of mutual funds. At the request of SEC Commissioners, that agency is engaged in an analysis of the Commission's 2010 reforms to money market fund regulation. Such analysis -- and a thorough examination of the voluminous public record already compiled on this issue -- should be completed before any further action is taken. `While we appreciate and will respond to the FSOC's invitation for other reform ideas, we are disappointed by the proposals featured in the FSOC's release -- forcing money market funds to 'float' their value, capital requirements, and daily redemption holdbacks. These concepts already have been the subject of extensive analysis and commentary. It appears that little of this analysis has even been considered by the FSOC. ICI and its members continue to oppose these reform concepts. When aired in the past, these concepts have elicited strong opposition for their adverse impacts on investors, issuers, and the economy from hundreds of organizations representing state and local governments, businesses, and others, as well as Members of Congress from both parties. Again, the FSOC appears to have disregarded their concerns. As we have said throughout the debate over money market fund regulation, ICI and its members are open to discussing any proposed changes provided they meet two principles: First, they must preserve the key characteristics of money market funds that have made them so valuable to investors, issuers and the economy; and Second, they must preserve a competitive marketplace of funds and fund sponsors, giving investors choice. Today's actions by the FSOC fail those tests. If implemented, they also will increase risks to the financial system by concentrating assets in a few large institutions or driving assets into alternative products that are far less regulated and transparent than money market funds."

The New York Times carries a Reuters story entitled, "Father and Son Cleared of Civil Fraud in Fund Case". It says, "Bruce Bent, a money-market pioneer, was cleared on Monday of civil fraud charges that he misled investors in the early days of the 2008 financial meltdown, a blow to regulators in one of the few cases accusing individuals on Wall Street of wrongdoing during the crisis. A jury rejected all of the charges against Mr. Bent following a monthlong trial in United States District Court in Manhattan. His son, Bruce Bent II, was also cleared of violating civil securities laws but was found liable on one negligence claim. Two entities tied to the Bents were also found liable on some charges. The Securities and Exchange Commission accused the Bents of lying to investors and fund trustees in attempts to stop a run on their Reserve Fund in September 2008."

Bloomberg writes "Money-Market Funds May Face Regulation in EU Shadow Bank Plan". The article says, "The European Commission will call for legislation on money-market mutual funds and securities lending agreements as part of a push to regulate so-called shadow banking. Michel Barnier, the EU's financial services chief, intends to propose a plan on shadow banking in the spring, Stefaan De Rynck, a spokesman for Barnier, said in an e-mail." De Rynck tells Bloomberg, "The overall objective is to make sure that our new regulations do not result in pushing activities to the world of shadow banking. To reach this goal, we will no doubt come forward with new legal initiatives in the next year on issues such as money market funds and securities lending." The piece adds, "The FSB, which brings together central bankers, regulators and finance ministry officials from the Group of 20 nations, has said that it will publish draft recommendations for regulating shadow banks, with a final version to come by September 2013. Barnier's proposals must be approved by governments and by the European Parliament before they can take effect."

The ICI's latest weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets increased by $31.24 billion to $2.578 trillion for the week ended Wednesday, November 7, the Investment Company Institute reported today. Taxable government funds increased by $7.09 billion, taxable non-government funds increased by $20.86 billion, and tax-exempt funds increased by $3.29 billion." Last week money fund assets dropped sharply (down $22.7 billion) as markets shut down ahead of Hurricane Sandy <b:>`_. ICI's release explains, "Assets of retail money market funds increased by $2.97 billion to $888.09 billion. Taxable government money market fund assets in the retail category increased by $580 million to $188.13 billion, taxable non-government money market fund assets increased by $400 million to $511.36 billion, and tax-exempt fund assets increased by $1.99 billion to $188.59 billion.... Assets of institutional money market funds increased by $28.27 billion to $1.690 trillion. Among institutional funds, taxable government money market fund assets increased by $6.51 billion to $680.30 billion, taxable non-government money market fund assets increased by $20.46 billion to $928.94 billion, and tax-exempt fund assets increased by $1.30 billion to $80.35 billion."

A release entitled, "Fitch: MMF Ratings Unaffected by Hurricane Sandy," says, "Fitch Ratings does not expect U.S. money market funds (MMF) to be materially adversely affected by Hurricane Sandy. Fitch-rated U.S. MMFs collectively manage approximately $460 billion in assets. Tax-exempt MMFs invest majority of their assets in short-term securities of municipal and tax-exempt issuers, including those located in the East Coast states affected by the storm. These issuers include local governments, educational and healthcare facilities, utilities and transportation systems. In the wake of Hurricane Sandy there have been unprecedented levels of damage to power, subways, commuter rail and telecommunications. However, economic impact of these events to tax-exempt MMFs is expected to be manageable due to limited direct exposure of MMF portfolios to this type of issuers. Fitch notes that the majority of assets in tax-exempt MMFs feature support from highly rated financial institution. However, approximately $1.0 billion of Fitch-rated tax-exempt MMF portfolios are invested in issuers in the storm affected areas that provide self-liquidity and are not backed by bank letters of credit (LOCs) or a stand-by purchase facility.... Fitch observed only minimal exposure to utility companies in the East Coast, such as New Jersey Natural Gas Company, which amounted to slightly over $20 million across all Fitch-rated MMFs. Furthermore, the great majority of short-term securities in tax-exempt MMF portfolios are issued in a form of variable rate demand notes (VRDNs) that are normally puttable within seven days. As of Sept. 30, 2012, Fitch-rated tax-exempt MMFs allocated 84.6% of their portfolios to such VRDNs.... Prime MMFs generally invest in high-quality short-term securities issued by U.S. government and its agencies, domestic and foreign financial and non-financial entities and repurchase agreements backed by such securities. Prime MMFs may also invest in securities issued by municipal and tax-exempt entities including VRDNs. As of Sept. 30, 2012, Fitch-rated prime MMFs, on average, had 3.8% of their portfolios invested in VRDNs. Fitch does not expect prime MMF ratings to be materially adversely affected by exposure to VRDNs issued municipal and tax-exempt entities due to mitigating factors as described above for tax-exempt MMFs.... Fitch noted a slight increase in demand on prime MMF liquidity in the last week of October, when prime MMFs experienced outflows of $28.1 billion, or close to 2% of the total prime assets, according to the Investment Company Institute. Fitch attributes these outflows to two factors: preemptive draws on MMF balances by institutional investors in the wake of the storm and month-end technical factors."

Reuters writes "As Fed focuses long term, high short-term rates weigh on lending", which says, "The Federal Reserve's efforts to lower U.S. interest rates and increase borrowing to stimulate the economy may be running into a problem of the Fed's own making: the stubbornly high cost to borrow short-term funds is constraining the ability of banks to make cheap loans. The Fed has been selling short-dated Treasuries in order to finance its purchases of longer-dated government bonds. It hopes this will reduce longer-term interest rates and boost borrowing needed to raise spending and reduce the jobless rate. The sales have pushed up the cost to borrow in the vital $5 trillion repurchase agreement (repo), even though other borrowing rates have declined, as banks struggle under the weight of absorbing the short-term debt." The article adds, "Money funds increased their repo lending to record levels in July and August, where the loans topped 25 percent of the total assets of taxable money funds for the first time, according to data firm Crane Data. At the same time as the repo loans increased, loans made to government agencies that guarantee mortgages and to companies through commercial paper declined, Crane data show. Repo loans fell in September due to quarterly "window-dressing", but "October data will no doubt show a rebound," said Peter Crane, President at the firm."

The FDIC posted a "Notice of Expiration: Temporary Unlimited Coverage for Noninterest-Bearing Transaction Accounts" yesterday, we learned from FDIC "Amalgamator" StoneCastle Partners. The FIL (Financial Institution Letter) says, "Pursuant to Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts (NIBTAs), including Interest on Lawyer Trust Accounts, is scheduled to expire on December 31, 2012. Absent a change in law, beginning January 1, 2013, the FDIC no longer will provide separate, unlimited deposit insurance coverage for NIBTAs at insured depository institutions (IDIs). IDIs are encouraged to take reasonable steps to provide adequate advance notice to NIBTA depositors of the changes in FDIC insurance coverage so that they may consider the impact of any change in coverage in their management of these transaction accounts. Statement of Applicability to Institutions Under $1 Billion in Total Assets: This Financial Institution Letter (FIL) applies to all IDIs, including those with under $1 billion in assets.... Section 343 of the Dodd-Frank Act provides separate, unlimited FDIC coverage for NIBTA depositors through December 31, 2012. Beginning January 1, 2013, the FDIC will insure NIBTAs in accordance with 12 C.F.R. Part 330, which generally provides each depositor up to $250,000 in coverage at each separately chartered IDI. Some NIBTA depositors may not be aware of the reduction in coverage. To ensure NIBTA depositors receive adequate advance notice of this insurance coverage change, we encourage IDIs to: Provide NIBTA depositors adequate advance notice in writing that the temporary unlimited coverage for NIBTA deposits is scheduled to expire on December 31, 2012, and thereafter the FDIC will insure NIBTAs up to $250,000 per depositor."

Reuters writes "Sheila Bair: Money Market Fund Proposal 'Could Make Matters Worse'", which says, "Former financial regulator Sheila Bair voiced worries about a new industry compromise plan for money market mutual funds, including implementing a fee for withdrawals during times of stress, saying it could worsen a crisis. Fund companies met with regulators last week in Washington, hoping they would accept limited new rules for stabilizing the funds if necessary. But Bair dismissed such notions in a statement e-mailed by a spokesman." She tells Reuters, "While I commend responsible members of the industry for trying to find solutions, I am concerned that gates coming down or fees going up in the middle of a crisis could make matters worse.... Another layer of complexity is not going to calm an already very risk-averse market." The piece adds, "Bair's comments show how difficult it may be to find a compromise that will please all sides in the debate over the future of the $2.5 trillion money fund industry."

"A Random Walk Down Wall Street" author Burton Malkiel writes "Money market funds come under attack" in Thursday's Financial Times. He comments, "Money market funds have been an unambiguous benefit to both individual and institutional investors, as well as to non-financial corporations and municipalities in need of short-run financing. But now the very existence of the $2.6tn money fund industry is under attack. Both present Federal Reserve chairman Ben Bernanke and former chairman Paul Volcker have called for stronger oversight of money funds because of their destabilising potential. And Treasury Secretary Timothy Geithner recently urged the Financial Stability Oversight Council to push forward new rules to rein in the industry as essential for financial stability.... [T]here are easier ways to make the system less vulnerable. For example, the liquidity, duration, and quality standards for money funds could be further strengthened. The SEC made progress in 2010 in establishing minimum requirements, and these could be used as a framework for further discussion. Another idea is to establish "circuit breakers" that take the form of standby liquidity fees on redemptions. For example, liquidity fees could be imposed if a fund's liquidity fell below a prescribed weekly level. The opportunity now presents itself for the money market fund industry and financial regulators to come back to the table to discuss viable alternative solutions. While a compromise should be based on give and take, neither side should abandon fundamental principles. For the industry, the principles should be based on maintaining a stable, safe, and convenient financial vehicle for their investors. For the regulators, the principles centre on ensuring financial stability. Surely there must be a common ground solution that preserves the product and protects markets."

A press release entitled, "U.S. Chamber to Release Money Market Fund Report Dispelling 'Myth' of Stable NAV and subtitled, "Center for Capital Markets Competitiveness Will Host Press Call with Former FASB Chairman Dennis Beresford to Discuss Findings," announced a call Thursday to release a money fund study on "amortized cost" accounting. It says, "The U.S. Chamber of Commerce's Center for Capital Markets Competitiveness (CCMC) will hold a press call to discuss the findings of a new report, Amortized Cost Is "Fair" for Money Market Funds, which examines more than 30 years of accounting standard setting and Securities and Exchange Commission regulation to support the use of the stable value at which money market funds (MMFs) trade. The paper, authored by Dennis Beresford, former chairman of the Financial Accounting Standards Board, diffuses the argument that the long-standing use of a stable net asset value (NAV), an essential aspect of MMFs for investors, is simply "accounting fiction" and must be changed to a floating NAV." The call ("CCMC's release of Amortized Cost Is ‘Fair’ for Money Market Funds") will take place Thursday, Nov. 1 at 11:00am Eastern and will feature Beresford, Ernst & Young Executive Professor of Accounting, J.M. Tull School of Accounting, University of Georgia; Former Chairman, Financial Accounting Standards Board; and, David Hirschmann, President and Chief Executive Officer, Center for Capital Markets Competitiveness; Senior Vice President, U.S. Chamber of Commerce. To register (media only), e-mail press@uschamber.com or call 888-249-NEWS.

Daily Link Archive