Daily Links Archives: January, 2013

A recent ICI Viewpoint, entitled "Money Market Funds and the Expiration of Unlimited Deposit Insurance" and written by Sean Collins and Chris Plantier, comments on the recent expiration of unlimited FDIC insurance. It explains, "As stipulated in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Deposit Insurance Corporation's unlimited insurance coverage on non-interest bearing transaction accounts, also known as the Transaction Account Guarantee (TAG), expired on December 31, 2012. Prior to the program's expiration, analysts predicted a massive shift ("hundreds of billions of dollars") from non-interest bearing transaction accounts to money market mutual funds. So what do the numbers tell us thus far in 2013? Bank deposits remain significantly higher than a year ago -- more than $700 billion higher -- while money market fund assets are just $17 billion above their January 2012 level. Money market funds have not received a surge in cash in January related to the TAG expiration. In fact, money market fund assets declined by $9 billion in the first full three weeks of January.... In the last two months of 2012, both banks and money market funds experienced inflows. On a seasonally adjusted basis, deposits at domestically chartered commercial banks rose by $222 billion in the last two months of 2012. Similarly, assets in all money market funds increased by a non-seasonally adjusted $158 billion in the nine weeks to January 2, 2013. (ICI does not publish seasonally adjusted levels.)" In other news, see also Bloomberg's "Treasury Receives Mixed Advice on Floating Rate Note Index".

State Street is the latest to comment to the FSOC, saying, "Overall, given the critical function money market mutual funds ("MMMFs") play in today's financial markets, State Street urges the FSOC to proceed cautiously with any regulatory changes for money market mutual funds. We are concerned that the adoption of the Proposed Reform, by effectively eliminating the viability of MMMFs for many of their current uses, will negatively impact the global economy, and urge the FSOC to adopt a more measured approach. MMMFs allow investors to achieve a liquid, diversified portfolio of high quality, short-term assets, managed by professional investment managers at a reasonable cost. For State Street's clients, such as state and private pension funds, endowments, and other institutional investors, use of MMMFs to effectively manage cash flows, invest temporary excess cash, and as a tool to manage cash collateral received as a component of a securities lending program improves returns and reduces expenses, ultimately adding to funds available to beneficiaries. This is of particular benefit to smaller institutional investors, who do not have the resources and tools to establish sophisticated treasury functions dedicated to cash management, nor sufficiently large balances to justify segregated cash management arrangements with professional money managers. In addition, MMMFs are important investors in a wide variety of securities, particularly for borrowers seeking to issue short-term funding instruments. Eliminating MMMFs as a market for such instruments will have significant negative impacts on the real economy. While, as the FSOC notes, there are options in the marketplace offering features similar to MMMFs, we share the broader industry view that none of these options offers a suitable substitute, particularly at the very large asset levels currently offered by MMMFs. Bank deposits, in particular, are an imperfect substitute for MMMFs in today's markets, due to capital, leverage, and other constraints limiting banks' ability to accept such large inflows of deposits on a profitable basis, and the inability of banks to replace MMMFs as buyers of short-term securities.... In considering MMMF reform, we encourage the FSOC to fully consider existing and emerging regulations that already impact how banks interact with MMMFs, as well as best practices in the context of how banks manage exposures to such funds.... Reducing the potential for MMMFs to impact bank balance sheets in a stress scenario is therefore an important consideration in any proposed reform that impacts MMMFs. This issue, however, is already being addressed by banking regulators, outside of any MMMF reform."

A statement entitled, "BofA Global Capital Management to Post Daily Market-Based NAVs of U.S. Prime Money Market Funds" says, "Beginning today, BofA Global Capital Management will begin posting market-based net asset values ("market-based NAV") for the BofA Cash Reserves Fund and the BofA Money Market Reserves Fund ("the Funds") each business day. The daily disclosure of the Funds' market-based NAVs will provide fund shareholders increased transparency regarding any impact of day-to-day market movements or events on the market value of the Funds' portfolios. Currently, in accordance with Securities and Exchange Commission rules, the market-based NAVs of the Funds are disclosed on a monthly basis and made available to the public on a 60-day lag via the Form N-MFP. Going forward, the Funds' shareholders will have daily access to market-based NAVs carried out to four decimal places. These values are calculated using available market values of the Funds' portfolio securities as of the Funds' close. This information will be available the following business day on BofA Global Capital Management's website: www.bofacapital.com. BofA Global Capital Management's daily posting of the Funds' market-based NAVs is for our clients' information only. It will not change the way the Funds are managed, nor will it change the Funds' objective to seek to maintain a $1.00 NAV. Additionally, it does not mean that the Funds will "float" their NAVs (i.e. price purchases and redemptions based on the market value of the Funds' shares). The Funds will continue to use amortized cost accounting, consistent with Rule 2a-7, to determine the value of the Funds' portfolio securities. The Funds continue to process purchases and redemptions at the rounded value of $1.00 per share. `It is important to note that the market-based NAVs of money market funds typically fluctuate within a narrow band around the $1.00 NAV per share. Fluctuations may reflect the influence of a number of variables, including changes in economic conditions, interest rate movements, and asset flows into and out of a fund. Should you have any questions about BofA Global Capital Management's decision to disclose the daily market-based NAVs for the BofA Cash Reserves Fund and the BofA Money Market Reserves Fund, please contact your BofA Global Capital Management representative." See also, Bloomberg's "Fund firms retreat from fight against money market rules".

The full and final binder from last week's Crane's Money Fund University has been posted on Crane Data's Content Page (go down to the bottom. All Attendees, Sponsors and Speakers should have received a password, and all Crane Data Subscribers with premium web access should also be able to access the PDF, which contains all the print versions of the Powerpoint presentations, the speaker bios, attendee list and reference materials. The Powerpoint files and session recordings will be added late this week. Thanks to our Sponsors, Speakers and Attendees for a successful event, and we encourage any feedback. Crane Data's next money fund event will be this summer's Money Fund Symposium, which will take place June 19-21, 2013, at the Baltimore Hyatt Regency. Registration is now open, and the preliminary agenda is being finished this week and will be out in early February. Next year's Crane's Money Fund University is planned for the Boston area in late January 2014. Watch for details in coming months. Finally, Crane Data is seeking feedback and input for its first European Money Fund Symposium, an event tentatively scheduled for late September in Dublin. Contact Pete for more details.

Corporate treasurers' organization, the Association for Financial Professionals commented recently to FSOC, "AFP fully supports amending the current rules in a manner that encourages clear and concise transparency, not only protecting investors but providing them with the necessary information needed to make the most sound and practical investment decisions for their organizations. AFP maintains that the implementation of additional regulation on MMFs, in the form of the recommendations presented by FSOC, will have major unintended harmful consequences that will result in significantly reduced investor interest in this investment. We urge the FSOC to consider the potential impact any changes to MMF rules may have on how investors in MMFs must account for investments under generally accepted accounting principles (GAAP). Specifically, while MMFs can currently be included as cash and cash equivalents due to their fixed share price and daily liquidity, the proposed rules may prohibit MMFs from being included as cash and cash equivalents and instead require that they be treated as short-term investments. Such a change would create complex and burdensome administrative expenses and potentially threaten compliance with debt covenants that mandate certain levels of cash equivalents."

Keystone ELF is the latest Comment letter to FSOC we've decided to mention. The company, run by government investment pool veteran Bill Spivey, proposes a novel liquidity bank solution. He writes, "We are more supportive of a liquidity-side model that addresses the "run" issue than a credit-side model, which focuses on eliminating losses and thus decreases accountability regarding investment decision. We believe the answer that Regulators seek regarding additional structural changes can be provided by the free market with the use of an external liquidity source and the continued use of liquidity minimums to manage the NAV and redemption ability, not a mechanism that manipulates the NAV or accepts a practice of short-selling securities. An external ELF would provide a system of checks and balances to insure transparency and accountability in the use of funds. In the past, we have proposed an ELF to Regulators and the Industry. Our solution is the result of our experience involving The Reserve Fund and a desire to provide a proactive mechanism to assist Funds in a similar situation. Initial feedback from Regulators indicates that our model is good, but that a 1% liquidity facility was just not big enough. With a 3% alternative proposed by Regulators, we are offering to adjust our model in the hope to move forward. Our liquidity sources indicate that a 3% facility would probably be the largest such reserve ever offered by the free market so evidence of interest for our solution by Regulators and the Industry is required. To Regulators, we seek confirmation that our solution achieves the strengthening of the Industry and a show of support for implementation as an option. To the Industry, we seek a partnership and collaboration to make our solution acceptable. If the LEB model was good enough to propose then why isn't another ELF acceptable?"

The American Bankers Association (ABA) submitted a comment letter to the FSOC opposing the imposition of a floating NAV. They write, "ABA offers the following general comments on the Council's proposed recommendations: First, there is very strong support for retaining a stable net asset value (NAV) MMF, as this product is preferred by trust departments and corporate trustees as a timely and economical way to invest short-term customer cash. Second, any regulatory action must avoid creating the perception that investments in MMFs are equivalent to insured bank deposit accounts in terms of federal supervision or backing. Third, the Council should carefully consider the sufficiency of the SEC's 2010 reforms and give them adequate weight, as many bankers are convinced that further reforms are not needed. In their examination of this issue, policymakers should carefully evaluate issues regarding the liquidity and credit quality of MMF portfolios, noting the differences between federal government instruments and those that are not backed by the full faith and credit of the federal government.... As with medicine, the first rule of the regulatory practitioner is to do no harm. We believe that of the three options for additional regulation offered by the FSOC for public comment, the least risk of damaging the value of MMFs to investors -- working from the foundation of a continued stable NAV regime -- is to be found in regulatory consideration of reforms involving questions of capital to support potential losses, adequate liquidity, prudent diversification, and useful disclosures.... In conclusion, ABA strongly supports the continued use of a stable NAV. To eliminate this critical feature of MMFs would severely undermine the usefulness of the product to bank trust departments and corporate trustees, as well as to other bank investors."

Late last week, ICI posted a "ViewPoint" entitled, "Securities Lending and Repos: FSB Intrudes on Areas Best Left to National Regulators, Market Forces." It says, "The Financial Stability Board (FSB), the international body established by the G20 to promote coordination among authorities responsible for financial stability, has made a number of recommendations toward creating a global policy framework for the securities lending and repurchase agreement (repo) markets. These efforts are a part of the FSB's agenda on the so-called shadow banking issue. ICI and ICI Global strongly support the FSB's work in identifying and addressing systemic risks in the securities lending and repo markets. However, in recent letters (ICI and ICI Global), we've urged the FSB to step back from certain recommendations that, in our view, inappropriately intrude on areas best left to market forces, national regulators, or regional regulators." ICI's "Background" explains, "Securities lending and investments in repos are two investment techniques that funds use to improve the return on their portfolios for the benefit of their shareholders.... As the name implies, securities lending involves a loan of securities owned by one party (the beneficial owner of the securities) to another party (the borrower). The borrower gives the lender collateral to secure the loan. Due to strict regulatory limits, securities lending is a relatively minor strategy for most publicly available regulated funds, designed to add incremental returns with minimal additional risk. Regulated funds are most often beneficial owners of the securities being lent, taking and reinvesting cash collateral.... A repurchase agreement, also known as a repo, involves the sale of securities together with an agreement for the seller to buy back the securities later at a slightly higher price. The securities sold collateralize the repo. Investments in repos may be a more prominent strategy for some regulated funds, particularly money market funds. Funds that enter into repos do so only with high-quality counterparties, and most frequently enter into repos as a collateralized short-term cash investment (i.e., they begin and end the transaction with cash). The Financial Stability Board has focused on this area since 2011. Our letters respond to a November 2012 consultation from the FSB, which sets forth the proposed framework. That consultation followed an Interim Report published last April."

BlackRock reported earnings and hosted a conference call yesterday morning. The company said, "In order to ensure compliance with new OCC guidelines regarding short-term investment funds STIFs BlackRock chose to sell certain legacy securities at a loss and to make a one-time 30 million contribution to the STIF funds to maintain the dollar NAV of the funds are also complying with the new rules. All of the securities effective by the new OCC guidelines had been purchased in BGI funds prior to BlackRock's acquisition to BGI and were supported by Barclay's under a $2.2 billion capital support agreement." CEO Larry Fink commented, "We always believe that we needed to change the money market industry to make it much safer with less systemic risks. We always believe that we need to create a sounder product for our clients and users of the product. So, I've always believed that we needed to have a constructive dialog with the regulators in Europe and in the United States. So we have taken a much more constructive approach in some of our peers over the years on this point. I am very pleased with the movement that we made in this industry. This was led by Goldman Sachs, but I do believe daily NAV is a good step by providing more transparency, which we've always said at BlackRock, we're prepared to do this. We may disagree with the outcomes what ultimately comes in and how do we navigate risks, but we're having a constructive dialogue. I do believe the net result will be a safer money market fund industry and I believe the product will be sound for investors. I'm not here to suggest that we're a 100% supporting floating rate NAV. We believe there's other approaches that probably get achieve the same results without a float, but I'm not -- we're going to be constructive on this, but the key element is to make this a product in which our investors see opportunities to invest to make excess return at the same time making sure as an industry we don't represent real risk for the industry and for society." In other news ICI's latest "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $15.19 billion to $2.701 trillion for the week ended Wednesday, January 16."

ICI's "Worldwide Mutual Fund Assets and Flows, Third Quarter 2012" says, "Mutual fund assets worldwide increased 5.2 percent to $26.05 trillion at the end of the third quarter of 2012, the highest level since the fourth quarter of 2007.... Flows into bond funds totaled $187 billion in the third quarter, up from net inflows of $163 billion in the previous quarter. Outflows from money market funds were $11 billion in the third quarter of 2012, down from the $39 billion of net outflows registered in the second quarter of 2012.... The global outflow from money market funds in the third quarter was driven predominately by the outflows of $39 billion in Europe, while the Americas registered inflows of $31 billion in the third quarter." According to a Crane Data analysis of ICI's data, the U.S. remained the largest money fund market in Q3'12 with $2.551 trillion, followed by France ($481 billion), Ireland ($385 billion), Luxembourg ($353B), Australia ($342B), Korea ($60B), China ($57B), Mexico ($56B), Brazil ($45B), and Canada ($32B). The U.S. showed the largest increase in Q3 (up $37.4B), followed by Australia (up $17.2B), Ireland (up $11.6B), and Liechtenstein (up $6.7B). The biggest declines were in Luxembourg (down $7.7B), Italy (down $2.6B), Chile (down $2.3B), and France (down $2.2B). Let us know if you'd like to see our latest spreadsheet showing the Largest Money Fund Markets Worldwide.

Bloomberg reports "FSOC Extends Comment Period for Proposed Money Market Overhaul". FSOC's website and the Comments on Regulations.gov don't confirm this news, but Bloomberg writes, "The Financial Stability Oversight Council said today it extended the comment period for the proposed overhaul of money-market mutual funds industry. Public can comment on the plan until February 15, according to a statement from the Treasury Department. Prior to the extension, the comments were due by Jan. 18."

Another Comment Letter in response to the Financial Stability Oversight Council's Proposed Money Market Reforms comes from Treasury Strategies. It says, "We are writing in response to the Financial Stability Oversight Council's recommendations on money market mutual fund ("MMF") reform, "Proposed Recommendations Regarding Money Market Mutual Fund Reform". Treasury Strategies, Inc. has prepared detailed opinions on each of the three alternatives and submitted them under separate cover to the Council. In them, we present evidence to discourage regulators from pursuing flawed and potentially devastating regulation. We appreciate the opportunity, as the leading corporate treasury and liquidity management consulting firm, to participate in this process and sincerely hope that you refrain from any actions that impair the deepest, broadest, most efficient and most transparent capital markets in the world. Treasury Strategies believes this entire process is seriously flawed. Many statements in your Proposal background purported to be "facts" are not facts at all. Rather, they are unfounded assertions that have been repeated so often by senior officials they have now become lore. But, we repeat, they are not facts. For four years, the regulatory process has been highly and publicly focused on placing new constraints and requirements on MMFs. Your Proposal asserts this is because MMFs were a pernicious source of trouble during the 2008-2009 financial crisis, and need to be reined and tamed so that does not happen again. We disagree.... [S]hould events similar to the precipitating events of the financial crisis ever be repeated, investors will still behave the same way. They will panic. They will run from every non-insured financial instrument, again. Period. That's the human emotion, not a financial decision. No amount of regulation will ever change that.... MMFs withstood the unprecedented events of the financial crisis remarkably well."

The Boston Globe writes "Fidelity to tell money market fund value daily". It says, "Fidelity Investments will start disclosing the real value of its money market mutual fund shares each day, following a move by three New York firms earlier in the week, as the largest players in the $2.5 trillion market try to stave off tighter regulations. Boston-based Fidelity, the nation's largest money market fund manager with $430 billion under its watch, Friday joined Goldman Sachs Group Inc., JPMorgan Chase & Co., and BlackRock Inc. in announcing plans to disclose valuations daily rather than monthly. By Friday afternoon, Charles Schwab & Co., a big Fidelity competitor, followed suit. Fidelity has vigorously fought efforts to increase regulation of money market funds led by former Securities and Exchange Commission chief Mary Schapiro. The financial crisis prompted fears of a "run" on these funds by anxious investors trying to cash out. The move to be more transparent is the latest effort to hold off regulators." The Globe adds, "It was surprising to see several big institutions all make similar announcements about disclosure this week, said Peter Crane, president of Crane Data in Westborough, which tracks money markets." They quote Crane, "It's a sign that funds are getting nervous about serious regulation, and a sign that the campaign that regulators have been on is scaring some investors." The piece adds, "For investors, little will change. They will still buy and sell money market funds for $1 a share. But the precise market value of the investments in the funds will be tallied and disclosed on Fidelity’s website each day, giving investors a more up to date financial view of their holdings."

ICI's weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets increased by $11.50 billion to $2.716 trillion for the week ended Wednesday, January 9, the Investment Company Institute reported today. Taxable government funds increased by $2.49 billion, taxable non-government funds increased by $8.30 billion, and tax-exempt funds increased by $710 million." Money fund assets rose for the third straight week and for the 8th time in the past 10 weeks. Since Oct. 31, 2012, MMF assets have increased by $169.8 billion, or 6.7%. They broke back above the $2.7 trillion level last week for the first time since June 15, 2011. While most attribute the heavy inflows to the expiration of TAG, the transaction account guaranty program that offered unlimited FDIC insurance, it's interesting to note that flows have been heavy in both retail and institutional funds. Since Oct. 31, Institutional money funds have increased by $114 billion, or 6.9%, while Retail money funds have increased by $54 billion, or 6.1%. Thus, there likely are other factors at work such as worries over the "Fiscal cliff" or cash stockpiling following Hurricane Sandy.

Bloomberg writes "JPMorgan Joins Goldman in Giving Daily Money Fund Values". It says, "BlackRock Inc., the world's biggest money manager, will begin revealing daily net asset values for all its U.S. money funds on Jan. 16. Goldman Sachs Group Inc. began today to disclose the values for its funds that are eligible to purchase commercial paper, or prime funds. JPMorgan Chase & Co. plans to take that step for all money funds, starting with prime funds on Jan. 14, and Bank of New York Mellon Corp. will make daily market values available 'going forward.'" The piece quotes our Peter Crane, president of research firm Crane Data LLC, "The prime goal here is to diffuse the misperception that's been created by regulators that fund share prices are an accounting fiction. It's a pretty good bet the daily values will show that market-value NAVs don't float." The piece adds, "Crane said he doubted the practical value of disclosing the market values." "The shadow NAVs don't differ materially from the rounded NAVs unless something blows up, in which case you don't see it until after it happens," Crane said.

The Wall Street Journal writes "Goldman Will Report Fund Values Each Day". The article says, "In a reversal of industry practice, Goldman Sachs Group Inc. will begin disclosing the values of its money-market mutual funds daily rather than monthly, according to people familiar with the company's plans. Some of the changes will take effect as early as Wednesday. Experts said Goldman is the first big fund provider to publish daily values but that the move could force other firms in the $2.7 trillion industry to follow.... Goldman, which began considering the changes in mid-2012, weighed the possibility that the increased reporting could lead to an investor run, but decided to move ahead anyway with the belief that the moves would raise more confidence in the funds, according to people familiar with the matter."

The Wall Street Journal's CFO Journal writes "Money Fund Inflows Hit Four-Year High as TAG Expires". It says, "Cash flowing into money market funds soared to the highest level in nearly four years during the week ended Tuesday. The move culminated a two-month push into such funds ahead of the expiration of an unlimited Federal Deposit Insurance Corp. guarantee on certain corporate bank accounts Dec. 31, which wasn't renewed for 2013 by Congress last month. Since the week ended Oct. 31, money market funds saw a net inflow of over $158.2 billion dollars, according to data compiled by the Investment Company Institute.... For the week ended on Tuesday, inflows totaled nearly $37.8 billion, the highest inflow level since the week ended Jan. 7, 2009, according to Peter Crane, president of Crane Data, which publishes the Money Fund Intelligence newsletter. The ends of months, quarters and years typically see outflows or weak inflows, which "sealed the deal" that these large inflows were related to the expiration of the FDIC's Transaction Account Guarantee Program, commonly known as TAG, Mr. Crane said." The piece adds, "Though companies did move a significant chunk of cash out of non-interest-bearing accounts and into money funds, Mr. Crane said, they continue to leave the bulk of the $1.5 trillion in such accounts where it is. Many, however, have switched to strategies that separate the cash into several accounts that each fall below the standard, $250,000 threshold for FDIC insurance, he said."

Federal Reserve Vice Chair Janet L. Yellen spoked Friday on the "Interconnectedness and Systemic Risk: Lessons from the Financial Crisis and Policy Implications." She says, "In my remarks, I will discuss a few of the major regulatory and supervisory changes under way to address the potential for excessive systemic risk arising from the complexity and interconnectedness that characterize our financial system. The design of an appropriate regulatory framework entails tradeoffs between costs and benefits.... I am quite aware that some reforms in the wake of the financial crisis, including those pertaining to derivatives, have been controversial. In connection with recent rulemakings--and, more broadly, in the arena of public debate--critics have asked whether complexity and interconnectedness should be treated as potential sources of systemic risk. This is a legitimate question that the Federal Reserve welcomes and itself seeks to answer in its roles of researcher, regulator, and supervisor. Let me say at the outset, though, that a lack of complete certainty about potential outcomes is not a justification for inaction, considering the size of the threat encountered in the recent crisis.... Enhanced capital standards for GSIBs serve to limit the risks undertaken by the largest, most interconnected institutions whose distress has the greatest potential to impose negative externalities on the broader financial system. A framework of higher minimum regulatory capital standards for these institutions was issued by the Basel Committee in November 2011, and indicators of interconnectedness account for a significant proportion of the overall score used to determine whether a bank will be subject to higher standards. As shown by Gai, Haldane, and Kapadia, among others, highly interconnected firms can transmit shocks widely, impairing the rest of the financial system and the economy. We saw, for example, that when Lehman Brothers failed, the shock was transmitted through money market mutual funds to the short-term funding and interbank markets. While some participants in each of these sectors had direct exposures to Lehman, many more did not. Moreover, even in cases in which direct exposures to Lehman were manageable, the turmoil caused by Lehman's failure added stress to the system at a particularly unwelcome time. In this way, the failure of a highly interconnected institution such as Lehman imposes costs on society well in excess of those borne by the firm's shareholders and direct creditors. Accordingly, tying enhanced capital requirements to interconnectedness improves the resilience of the system. Of course, higher capital requirements are not costless; they may raise financing costs for some borrowers, and they have the potential to induce institutions to engage in regulatory arbitrage. An important ongoing agenda for research and policy is the design and implementation of data-based measures of interconnectedness to ensure that our understanding of financial system interconnections evolves in tandem with financial innovation."

Fitch Ratings published "U.S. Money Fund Exposure and European Banks: Eurozone Rises for Fifth-Straight Month". The report's release says, "U.S. prime money market fund (MMF) exposure to Eurozone banks rose for the fifth consecutive month although exposures remain well-below previous levels, according to Fitch Ratings. As of end-November 2012, Eurozone bank allocations accounted for 13.7% of total U.S. MMF holdings, an 8% increase on a dollar basis since end-October 2012. During the same period MMF allocations to German and French banks increased by 26% and 6%, respectively. Despite these recent increases, MMF exposure to Eurozone banks remains 60% below end-May 2011 levels. Fitch believes a return to end-May 2011 eurozone exposures in the near term is unlikely, particularly given European banking supervisors' efforts to limit banks' use of short-term USD funding. New Basel liquidity rules will likely also discourage banks' use of short-term wholesale funding. These regulatory pressures could constrain the future issuance of shorter-term bank debt, which has historically been an important asset class for MMFs. The proportion of European and Eurozone exposure in the form of repos rose slightly, indicating a preference for secured exposure that might signify lingering MMF risk aversion to the sector. Aggregate repo exposure continues to represent about 20% of total MMF assets. The 15 largest exposures to individual banks, as a group, comprise approximately 42% of total MMF assets, with only one Eurozone bank within the top-15."

The U.S. Chamber of Commerce's Center for Capital Markets Competitiveness is seeking support for a letter-writing campaign to oppose the Financial Stability Oversight Council's (FSOC's) Money Market Fund Reform Proposals. The Chamber's "Money Market Mutual Fund Reform" website says, "The U.S. Chamber of Commerce has organized a comprehensive campaign to ensure that any regulatory action to reform money market fund reforms does not adversely impact businesses' ability to manage cash and raise the capital necessary to drive job creation and economic growth. We are encouraging our members, trade associations, individuals, states, municipalities and local authorities, and others who may be impacted by the changes to join this effort and to TAKE ACTION! Recent Regulatory Activity: The Financial Stability Oversight Council (FSOC) released draft recommendations to the SEC to advance additional regulations for MMMFs. The suggested reforms, including a floating NAV and redemption holdbacks, put forth by the FSOC would fundamentally change, weaken, or even eliminate the product. These changes would adversely impact businesses across every industry, in addition to states and municipalities, who use MMFs as a short-term cash management tool. Tell FSOC not to move forward with these recommendations! FSOC is accepting comments until January 18.... To show the collective opposition to recommendations that would fundamentally alter the structure and nature of money market funds, likely out of existence, the Chamber is organizing a sign on letter that will be filed with FSOC. Click here to add your organization's name to the letter."

The New York Times writes "Big Depositors Seek a New Safety Net". The article says, "On the first day of the New Year, $1.5 trillion of bank deposits will lose an unlimited government guarantee that was granted during the financial crisis to assure skittish customers that their cash was safe. For a handful of boutique firms that service banks, it's a boon for business. The accounts losing the insurance are used by businesses, municipalities and other entities like nonprofits that are willing to forgo any interest in order to have immediate access to their large pools of cash. These accounts hold about 20 percent of all deposits in United States banks. Starting Jan. 1, only $250,000 in each noninterest bearing account will be backed by the Federal Deposit Insurance Corporation. Now a scramble is under way to make sure these customers do not withdraw large sums out of banks, particularly community banks that have benefited from the guarantee. Because a depositor is barred from spreading out $1 million into four accounts within the same bank, many smaller banks are turning to a handful of specialized cash-management firms that can split up deposits into multiple $250,000 chunks and distribute them among a network of banks, each of which can insure $250,000."

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