2022-02-28-纽约联储-货币市场基金脆弱性_全球视角（英）_28页_1mb

Summary of Money Market Fund Vulnerabilities: A Global Perspective

Core Content

Money market funds (MMFs) are a type of open-end mutual fund that invests primarily in short-term instruments and aims to maintain stable share prices. With over $9 trillion in assets under management (AUM) globally as of mid-2021, MMFs are a significant part of the financial system, offering investors features similar to bank deposits, such as liquidity and stable net asset values (NAV). However, this unique position also makes MMFs vulnerable to runs and liquidity crises, especially due to their role in liquidity transformation and their status as private money-like assets.

Main Points

1. Origins of MMFs

• United States (1972): MMFs were introduced to provide investors with access to money market rates when bank deposit rates were capped. The first MMFs were designed to mimic deposit features, such as stable NAVs and check-writing privileges.
• France (1981): French MMFs emerged as a response to interest rate caps, allowing banks to bypass regulations and offer competitive yields. Initially focused on government debt, they later expanded into private short-term debt instruments.
• Luxembourg and Ireland (late 1980s-early 1990s): These countries became major hubs for MMFs, especially due to tax advantages and the appeal to foreign institutional investors.
• Japan (1992): JMMFs were introduced as a safer alternative to bank deposits, but they faced a severe run in 2001. Later, safer alternatives like money reserve funds (MRFs) were introduced.
• China (2003): MMFs grew rapidly due to low bank deposit rates and relaxed portfolio restrictions. They now hold $1.4 trillion in AUM and are the second-largest MMF sector globally.

2. Vulnerabilities of MMFs

a. Liquidity Transformation

• MMFs transform illiquid assets into liquid liabilities, making them susceptible to runs during liquidity shocks.
• Many MMF assets, such as commercial paper (CP) and negotiable CDs, have limited secondary markets.
• Regulatory requirements often mandate holding a buffer of liquid assets, typically with maturities under five business days.
• During crises, MMFs may be forced to sell assets faster than other investors, exacerbating liquidity pressures.

b. Private Money-Like Assets

• MMFs are designed to function like money, with features such as stable NAVs and no-questions-asked (NQA) status.
• This moneyness can be suddenly lost if credit risks or market conditions change, leading to rapid redemptions.
• Sponsor support is often crucial in preserving the NQA status of MMF shares, and concerns about this support can worsen runs.

c. Institutional Investor Behavior

• Institutional investors, such as nonfinancial businesses, hold a large share of MMF assets and are more likely to redeem quickly during crises.
• Their large cash needs and quicker reassessment of moneyness contribute to systemic liquidity risks.
• The SEC introduced more stringent reforms for institutional funds in 2014 due to their heightened risk-taking behavior.

d. Contagion Risks

• MMFs tend to hold similar types of assets, leading to high portfolio overlap and substantial market footprints.
• This similarity increases the risk of contagion, where liquidity shocks to one fund can affect others.
• During the 2020 crisis, MMFs faced acute challenges in disposing of assets due to limited market capacity for secondary sales.

e. Threshold Effects

• Certain regulatory thresholds, such as weekly liquid asset (WLA) requirements and NAV rounding, can trigger abrupt changes in investor behavior.
• When WLA falls below 30%, funds may impose redemption gates or fees, prompting accelerated redemptions.
• NAV rounding can create a sudden drop in value when the fund's NAV dips below a certain level, incentivizing preemptive redemptions.
• European LVNAV funds use NAV collars, which create similar threshold effects with smaller NAV adjustments.

Key Information

• MMFs are popular globally due to their money-like features and liquidity.
• Their vulnerabilities stem from liquidity transformation and the fragility of their moneyness.
• Since 2000, MMFs have faced multiple runs in various countries and under different regulatory regimes.
• Institutional investors play a critical role in liquidity pressures, often redeeming faster than retail investors.
• Regulatory reforms have been introduced to address these vulnerabilities, but they remain a significant risk to financial stability.
• MMFs are not unique to a particular regulatory framework, indicating the need for structural reforms or deposit-like protections.