Fed eyes partial bank-holiday to prevent run on money-market funds
Plans like this are the first steps toward much larger goals. Increases in government control are almost never rescinded after the “emergency” is over.
NASDAQ.com reports,
The Federal Reserve Bank of New York said it supports limiting some types of money-market fund withdrawals in a bid to protect those funds from suffering the equivalent of a bank run.
The recommendations came from a staff report released Thursday. New York Fed President William Dudley in a press release accompanying the document said he “strongly” endorses the ideas put forth by authors Patrick McCabe, Marco Cipriani, Michael Holscher and Antoine Martin.
“Further reform of money funds is essential for our nation’s financial stability,” Mr. Dudley said.
The analysts propose that money-market funds could be strengthened if they were to have a “minimum balance at risk.” As envisaged by the authors, this balance “would be a small fraction of each shareholder’s recent balances that would be set aside in the event that they withdrew from the fund,” the press release said. . . .
The idea advanced in the New York Fed paper seeks to force investors to be more mindful of what they are doing with money-market fund investments. Many perceive the funds to be a very safe and liquid place to park funds. But that notion was tested during the 2008 financial crisis, and some have worried that in the current environment, money-market funds could be a prime conduit for importing Europe’s ongoing financial crisis to the U.S.