's old team has some ideas about money market mutual fund reform. As the U.S. Treasury Secretary urges
his Financial Stability Oversight Council to intervene and regulate money funds, economists at the New York Fed (which Geithner previously led) have their own suggestion: the creation of a "minimum balance at risk."
The proposal comes from: Marco Cipriani
, senior financial economist in the New York Fed's research and statistics group; Michael Holscher
, an officer in the New York Fed's financial institution supervision group; Antoine Martin
, assistant vice president in the New York Fed's research and statistics group; and Patrick McCabe
, senior economist for the Federal Reserve System's board of governors. The quarter detailed
their idea in a staff report back in July, then wrote more
yesterday on thew New York Fed's blog. Ross Kerber of Reuters reported
on the proposal.
The MBR proposal would not challenge the stable $1 NAV for money funds. Instead, it would designate an amount, say five percent of a shareholder's maximum balance over the past 30 days, that they could not remove immediately. That minimum balance at risk remaining in the fund would also suffer losses before the balances of shareholders who had not withdrawn any of their funds.
"With an MBR in place, redeeming investors wouldn't be able to eliminate their entire MMF exposure immediately," the economists wrote. "As a result, the incentive to run would be reduced."
Neil Anderson, Managing Editor
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