The teams at two big mutual fund shops are both asking the SEC for permission for their mutual funds to lend money to other mutual funds within the same family.

On Friday BlackRock [profile] managing director John Perlowski filed for '40 Act exemptions to create an interfund lending program for BlackRock mutual funds to make short term loans to each other, and yesterday Lord Abbet's [profile] Brooke Fapohunda (assistant general counsel) and Lawrence Kaplan (partner, general counsel) filed a similar request.

In both cases, the fund shops would set the interfund loan rate daily by averaging the repo rate and the bank loan rate. In both cases, each fund would be allowed to lend no more than 15 percent of its assets at a time, and no more than five percent to any single fund. In both cases, the loans can be called on one business day's notice and will last no more than seven days. And in both cases individual funds are capped at borrowing 125 percent of their total net cash redemptions for the past seven days or 102 percent of "sales fails" for the past seven days, whichever is greater.

The idea, as presented in both requests, in two-fold: reduce their funds' short-term borrowing costs, and increase their funds' returns on the cash they hold each day. 

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