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Friday, February 08, 2013

Are Money Funds Destabilizing Banks?

News summary by MFWire's editors

The Federal Reserve thinks money market funds may be hurting the banking system, according to a Wall Street Journal article.

Reporter Jessica Holzer writes that a new study by the Federal Reserve Bank of New York thinks that banks using money funds as a source of funding is destabilizing the banks, because money funds can have runs.

The study found that money funds provided the cash for 43 percent of U.S. financial commercial paper as well as 29 percent of CDs in 2012, Holzer reported.

As you might guess, the Investment Company Institute disagreed with the findings.

“This Fed paper is a theoretical study, offering no data to back its conclusions,” an ICI spokeswoman told the Journal.

For more details, check out the original article

Edited by: Ben Geier


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