As part of its ongoing work on non-bank financial intermediation and following significant volatility in short-term funding markets early in the pandemic, the Financial Stability Board is seeking comments on various policy proposals aimed at enhancing the resilience of money market funds. The proposals “are intended to inform jurisdiction-specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by [the International Organization of Securities Commissions].”
“MMFs are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions,” FSB noted. “A number of mechanisms could be used to address these MMF vulnerabilities—they include imposing on redeeming investors the cost of their redemptions; absorbing losses; reducing threshold effects; and reducing liquidity transformation.”
Among the proposed policy options were swing pricing; minimum balance at risk and a capital buffer; removal of ties between regulatory thresholds and imposition of fees/gates and removal of the stable net asset value; and limits on eligible assets and additional liquidity requirements and escalation procedures. Comments are due Aug. 16.