Hal S. Scott
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780262034371
- eISBN:
- 9780262332156
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262034371.003.0019
- Subject:
- Economics and Finance, Economic History
Prime money market mutual funds (MMF) are particularly susceptible to runs given the inherently short-term nature of their liabilities and the riskiness of their assets as compared with government ...
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Prime money market mutual funds (MMF) are particularly susceptible to runs given the inherently short-term nature of their liabilities and the riskiness of their assets as compared with government funds. Thus, it is a proper object of policy to minimize the possibility of prime money market fund runs. This chapter discusses the SEC's approach to MMF reform. The approach incorporates three elements: (1) enhanced liquidity requirements; (2) a floating net asset value (NAV) requirement for certain classes of money market funds; and (3) the possibility of imposing liquidity fees and redemption gates on money market funds, which would limit rapid MMF creditor outflows in times of stress. It specifically rejected imposing a capital requirement on these funds. At the outset it should be clear that the concern with contagion should only be with prime money market funds and municipal funds, and not with government funds, which are all but immune from runs.Less
Prime money market mutual funds (MMF) are particularly susceptible to runs given the inherently short-term nature of their liabilities and the riskiness of their assets as compared with government funds. Thus, it is a proper object of policy to minimize the possibility of prime money market fund runs. This chapter discusses the SEC's approach to MMF reform. The approach incorporates three elements: (1) enhanced liquidity requirements; (2) a floating net asset value (NAV) requirement for certain classes of money market funds; and (3) the possibility of imposing liquidity fees and redemption gates on money market funds, which would limit rapid MMF creditor outflows in times of stress. It specifically rejected imposing a capital requirement on these funds. At the outset it should be clear that the concern with contagion should only be with prime money market funds and municipal funds, and not with government funds, which are all but immune from runs.