纽约联储-货币市场基金脆弱性：全球视角（英）-2022.3-28页_1mb

Summary of "Money Market Fund Vulnerabilities: A Global Perspective"

Core Content

Money market funds (MMFs) are a type of mutual fund that invests primarily in short-term instruments and aims to maintain stable share prices. They have become a significant part of the global financial system, with over $9 trillion in assets under management (AUM) as of mid-2021. MMFs originated in the United States in 1972 and later spread to France, Luxembourg, Ireland, Japan, and China, often as a response to regulatory constraints on bank deposit rates or to offer competitive returns to investors.

Main Points

• MMFs as Hybrid Instruments: MMFs straddle the functions of bank deposits and investment funds. They offer features like stable share prices and check-writing privileges, making them attractive to investors seeking money-like assets with returns above traditional bank deposits.

• Liquidity Transformation: MMFs convert illiquid assets into liquid liabilities by offering daily redemptions. This process makes them vulnerable to runs, especially when market conditions deteriorate and investors seek to redeem quickly.

• Vulnerability to Runs: MMFs are susceptible to sudden and disruptive redemptions due to liquidity transformation, the perception of moneyness, and the lack of deposit-like protections. The 2008 Global Financial Crisis and the early stages of the COVID-19 pandemic highlighted these vulnerabilities, prompting regulatory reforms.

• Regulatory Reforms: Following past crises, regulatory bodies have introduced measures to mitigate MMF risks, such as WLA thresholds, NAV rounding, and redemption gates. These reforms aim to ensure that MMFs can meet redemption demands without collapsing.

• Global Variations: MMFs differ across jurisdictions in terms of structure and regulation. For instance, U.S. MMFs often use CNAV (constant net asset value) and allow amortized cost valuation, while French MMFs use VNAV (variable net asset value) and are more restricted in their asset holdings.

• Contagion Risk: MMFs tend to hold similar assets, increasing the risk of contagion during liquidity shocks. The high degree of portfolio overlap and large market footprints exacerbate this risk, as the inability of short-term funding markets to absorb secondary sales can lead to acute liquidity problems.

• Institutional Investors: Institutional investors are a major component of MMF ownership and are more likely to redeem quickly during crises. Their larger and more sophisticated nature contributes to the speed and scale of redemptions, further increasing the risk of runs.

• Threshold Effects: Certain rules, such as WLA thresholds and NAV rounding, can create abrupt changes in investor behavior. These rules may incentivize preemptive redemptions when thresholds are approached, worsening liquidity stress.

• Role of Sponsor Support: In some jurisdictions, sponsor support is crucial in maintaining the moneyness of MMFs. However, concerns about the ability of sponsors to provide such support can lead to a loss of confidence and accelerate runs.

Key Information

• Global AUM: Over $9 trillion in AUM as of mid-2021, representing about 13% of global mutual fund assets.
• Origins: MMFs were first introduced in the U.S. in 1972 and later in France, driven by regulatory constraints on bank deposit rates.
• Regulatory Frameworks: U.S. MMFs use CNAV and amortized cost valuation, while French MMFs use VNAV. The European Union introduced MMFR in 2018 to address these issues.
• Liquidity Transformation: MMFs convert illiquid assets into liquid liabilities, making them vulnerable to runs when liquidity dries up.
• Credit Risk Exposure: MMFs often hold private short-term debt instruments like commercial paper (CP) and negotiable CDs, which are illiquid and lack secondary markets.
• Institutional Ownership: Institutional investors make up a significant portion of MMF ownership, especially in the U.S. and EU, with some jurisdictions reporting over 90% institutional ownership.
• Regulatory Responses: Post-crisis reforms have aimed to increase MMF resilience, including WLA requirements, redemption gates, and NAV rounding rules.
• Contagion and Threshold Effects: Similar portfolio holdings and regulatory thresholds can lead to coordinated redemptions and amplify systemic risks.
• Sponsor Role: Sponsor support is vital for maintaining MMF stability, but its absence can trigger runs and loss of moneyness.

Conclusion

MMFs are a critical part of the global financial system but are inherently vulnerable to runs due to their structure and the liquidity transformation they perform. These vulnerabilities are not confined to any single regulatory regime and require structural reforms to either clarify their role within the investment fund sector or provide them with deposit-like protections. The lessons from past crises and the ongoing evolution of MMF regulations underscore the need for a balanced approach that ensures financial stability while preserving their role as a source of short-term liquidity.