Money funds are now required by the SEC to have more than double the amount of cash on hand that was needed in September 2008 to pay redeeming shareholders." 5 billion from 1971 through 2010."ĭonahue continues, " Today money funds hold 30 percent or more of assets in 7- day available cash and 10 percent in overnight available cash. This is a remarkable contrast to the costs of the bailouts of 2, 840 failed banks and an additional 592 banks that required ' assistance transactions' at a total cost of $ 188.
Treasury for insurance that was never used. In fact, money market fund companies paid $ 1. It is important to remember that when the dust settled, the Reserve Primary Fund investors lost less than a penny on the dollar and no taxpayer funds were needed. He adds, " The steps then taken by the Fed and Treasury were not a " bailout" of money funds but rather, in the case of the Fed actions, necessary and proper steps to restore liquidity to the financial system as a whole. The conclusion that should be drawn from this is that investors were not fleeing money market funds but rather were reallocating assets to the most conservative investments in a reeling market beset by the failures and near failures of many leading financial institutions, unpredictable government policies and widespread concerns about whether prime funds could continue to sell assets into the frozen commercial paper market." For every dollar that left prime funds, 63 cents flowed into government money market funds. As counterparty risk perception increased, institutional investors redeemed 15 percent of their prime money fund shares, followed by large inflows into money funds backed by government debt. The Reserve Primary Fund failure in September 2008, followed an unprecedented period that saw the collapse of Lehman Brothers, a number of major financial institutions on the brink and inconsistent responses to these events by the government. Importantly, only one money market fund lost its $ 1 NAV in September 2008 - and only after an 18- month period that saw the failure of dozens of banks, mortgage lenders and other financial institutions causing the credit markets to freeze up."ĭonahue tells us, " This is often paired with the falsehood that money market funds are " susceptible to runs" and were bailed out by taxpayers. When those bets went bad, the complex web of counterparty arrangements between different institutions threatened to cause a general collapse of the system. The meltdown occurred because certain financial institutions placed enormous leveraged bets on the subprime housing market amplified in many cases by derivatives and by the Fed' s easy money policy. He explains, " The facts tell a very different story. If one accepts this falsehood, then the arguments in favor of preserving the utility of money funds for 50 million investors and the multitude of municipalities, corporations and other entities who depend on money funds for efficient funding can be ignored." The first one we continually hear is that money market funds were either at the center of or significantly exacerbated the financial crisis of 2007- 2008. We are among a broad group of businesses, state/ local government agencies, trade associations, public interest groups and financial institutions that believe these rules will destroy the functionality, utility, effectiveness and the very essence of money market funds, which are so vital to our economy."ĭonahue continues, " I want to take a few minutes on this call to take a look at on some of the myths that continue to be spread by regulators and simply repeated by many in the media. You know well our position opposing the SEC' s draconian proposals for floating the NAV and/ or instituting redemption restrictions and capital requirements.
CHRIS FINK FIFTH THIRD BANK SERIES
I discussed Federated' s belief that money funds were meaningfully and sufficiently strengthened by the extensive regulatory revisions to Rule 2a- 7 in 2010 and that these enhancements were tested and worked successfully through a series of challenges in 2011 that included the United States debt ceiling crisis and credit downgrade as well as worries over a Greek default and European bank solvency.
Christopher Donahue," it says, " During the last few quarters' conference calls I have made comments and answered questions concerning potential SEC proposals for the further regulation of money market funds. Entitled, " Money- market fund regulation comments of J. On Friday morning' s Federated Investors quarterly earnings conference call, President & CEO Chris Donahue added a segment to the normal presentation that addressed " myths" surrounding the debate over money fund reform.
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