EFAMA published a report entitled ‘European MMFs in the Covid-19 market turmoil: Evidence, experience and tentative considerations around eventual future reforms’.
The 
report
covers all three Money Market Fund categories and suggest that MMFs in
Europe have fared well under the March 2020 stress test.
The
pandemic-induced market events experienced in March 2020 have marked the
first true ‘stress-test’ for European MMFs, following the introduction
of the EU Money Market Fund Regulation (MMFR) in 2017. Despite the
severity of the liquidity stress in the secondary market for short-term
instruments and the significant outflows experienced by European MMFs
across all three of the MMFR-identified categories (public debt CNAV,
LVNAV and VNAV), funds proved resilient.
Overall,
EFAMA’s findings suggest that European MMF funds entered the volatile
month of March with liquidity levels (expressed in terms of weekly
maturing assets) well above their regulatory minima, helped also by a
better understanding of their investor base as per MMFR requirements.
Moreover, the ECB’s Pandemic Emergency Purchase Programme (PEPP),
announced on 18 March, only had a limited impact on European MMFs, due
to the programme’s strict eligibility requirements that excluded
purchases of financial commercial paper (i.e. the large bulk of MMF
asset holdings by definition), as well as assets denominated in non-Euro
currencies. In light of this evidence and from the resulting arguments,
the report highlights a number of possible policy courses that global
standard-setters (notably IOSCO and the FSB) could consider when
attempting to review existing standards. Among these, EFAMA highlights
the option of further facilitating liquidity provision by dealer banks
and other financial intermediaries in the secondary market by mitigating
these institutions’ balance sheet constraints at times of heightened
market stress.
These and other evidence-drawn conclusions
will feed into the policy debate going forward, while also confuting the
notion that central bank interventions were largely responsible for
‘bailing-out’ non-bank financial institutions like MMFs.
EFAMA
© EFAMA - European Fund and Asset Management Association
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