Institutional investors say they will sharply reduce their use of money market funds if the
That could cost money market funds hundreds of billions of dollars in assets, according to Treasury Strategies, author of the report for ICI, called Money Market Fund Regulations: The Voice of the Treasurer.
Institutions currently account for about $1.3 trillion of the
That would mean more than
That could severely disrupt the industry, calling its survival into question, she suggested.
And commercial banks, she said, are not ready to take the additional deposits. They are "awash in liquidity" and can't find productive uses for the assets they already hold. The additional funds also would force them to hold more capital and pay higher federal deposit insurance fees.
The Treasury Strategies study shows that a majority of treasurers would either scale back their use of money market funds or discontinue use of them altogether if any of these three regulatory concepts went into effect. The ICI commissioned the survey, which was conducted by
In particular, the report’s results show that:
If money market fund NAVs were required to float:
• 79 percent of respondents would either decrease their use or discontinue altogether.
• 61 percent of corporate money market fund assets would move to other investments if this concept were adopted.
2. If money market funds were required to institute a 30-day holdback of 3 percent of all redemptions:
• 90 percent of respondents would either decrease their use or discontinue altogether.
• 67 percent of corporate money market fund assets would move to other investments if this concept were adopted.
3. If money market funds were required to maintain a loss reserve or capital buffer:
• 36 percent of respondents would either decrease their use or discontinue altogether when the question did not suggest that investors would suffer any reduced yield.
• In a follow-up question directed to the 64 percent who initially stated they would continue or increase their usage of money funds, 84 percent of the follow-up respondents indicated they would decrease or stop their usage altogether if the capital buffer were to reduce the yield of the fund by 5 basis points.
• The report makes no estimate on the decline in assets if the
The Institute will file the study as part of a new comment letter to the
“The message from treasurers is clear. While they value money funds, they will simply abandon the instrument should any of these concepts be adopted. The potential implications of such a widespread run away from money funds are staggering,” stated Gregg.
|Copyright:||(c) 2012 Financial Planning. All rights Reserved.|
|Source:||Source Media, Inc.|