Economic Brief

February 2014, No. 14-02

Reforming Money Market Mutual Funds: A Difficult Assignment

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The money market mutual fund (MMMF) industry was one of many segments of the financial sector that experienced significant volatility during the 2007–08 financial crisis. Reform efforts have been underway to make the industry more resilient to shocks, but proposals have been controversial. This Economic Brief explores some of the key issues and sheds light on why reforming this industry has been so challenging.

Additional Resources

Brady, Steffanie A., Ken E. Anadu, and Nathaniel R. Cooper, "The Stability of Prime Money Market Mutual Funds: Sponsor Support from 2007 to 2011," Federal Reserve Bank of Boston Risk and Policy Analysis Unit, Working Paper No. RPA 12-3, August 2012.

Duygan-Bump, Burcu, Patrick Parkinson, Eric Rosengren, Gustavo A. Suarez, and Paul Willen, "How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility," Journal of Finance, April 2013, vol. 68, no. 2, pp. 715-737. (A working paper version is available online.)

Ennis, Huberto M., "Some Theoretical Considerations Regarding Net Asset Values for Money Market Mutual Funds," Federal Reserve Bank of Richmond Economic Quarterly, Fourth Quarter 2012, vol. 98, no. 4, pp. 231-254.

Federal Reserve Board of Governors press release, September 19, 2008.

Geithner, Timothy F., Secretary of the Treasury, Letter to Members of the FSOC, September 27, 2012.

Letter, signed by all 12 Reserve Bank presidents, to the FSOC (February 12, 2013) and letter to the SEC (September 12, 2013) endorsing the floating NAV option while raising concerns about other options for MMMF.

McCabe, Patrick E., Marco Cipriani, Michael Holscher, and Antoine Martin, "The Minimum Balance at Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds," Federal Reserve Bank of New York Staff Reports, July 2012, No. 564.

"Proposed Recommendations Regarding Money Market Mutual Fund Reform," Federal Register, vol. 77, no. 223, November 19, 2012, pp. 69455-69483.

"Report of the President's Working Group on Financial Markets: Money Market Fund Reform Options," October 2010.

"SEC Approves Money Market Fund Reforms to Better Protect Investors," SEC press release, January, 27, 2010.

"SEC Proposes Money Market Fund Reforms," SEC press release, June 5, 2013.

"Statement of SEC Chairman Mary L. Schapiro on Money Market Fund Reform," SEC press release, August 22, 2012.

"Treasury Announces Guaranty Program for Money Market Funds," Treasury Department press release, September 19, 2008.