The Financial Stability Board (FSB) today published a consultation report with policy proposals to enhance money market fund (MMF) resilience.
The FSB’s Holistic review of the March 2020 market turmoil highlighted
structural vulnerabilities in MMFs and related stress in short-term
funding markets. MMFs are susceptible to sudden and disruptive
redemptions, and they may face challenges in selling assets,
particularly under stressed conditions. These features can make
individual MMFs, or even the entire MMF sector, susceptible to runs, and
may also give rise to system-wide vulnerabilities.
The policy options in the report aim to address these vulnerabilities
and are intended to inform jurisdiction-specific reforms and any
necessary adjustments to the policy recommendations for MMFs issued by
the International Organization of Securities Commissions (IOSCO).
Enhancing MMF resilience will help address systemic risks and minimise
the need for future extraordinary central bank interventions to support
the sector.
The policy options are grouped according to the main mechanism
through which they aim to enhance MMF resilience – namely, to: impose on
redeeming investors the cost of their redemptions; absorb losses;
reduce threshold effects; and reduce liquidity transformation. The
report assesses the likely effects of each option on the behaviour of
MMF investors, fund managers and sponsors, as well as their implications
for the underlying markets,
The consultation report also sets out considerations on how different
policy options could be selected and combined to address all the
vulnerabilities arising from different types of MMFs. The optimal
combination should take account of jurisdiction-specific circumstances
and policy priorities, as well as cross-border considerations including
to prevent regulatory arbitrage that could arise from adopting divergent
approaches across jurisdictions.
Policies aimed at enhancing the resilience of MMFs could be
accompanied by additional reforms in two areas: (i) policies to support
robust risk management by fund managers and risk monitoring by
authorities; and (ii) measures to improve the functioning of the
underlying short-term funding markets.
Responses to the public consultation should be sent to fsb@fsb.org
by 16 August with “MMF policy proposals” in the subject line. All
responses will be published on the FSB website unless respondents
request otherwise. The final report will be published in October 2021.
Notes to editors
The FSB published a Holistic review of the March 2020 market turmoil which
lays out a comprehensive and ambitious work programme for strengthening
the resilience of the NBFI sector while preserving its benefits. The
policy proposals to enhance the resilience of MMFs are a key deliverable
of the work programme for 2021.
The proposals were developed by the FSB Technical Expert Group (TEG)
on MMFs, which comprises experts from FSB and IOSCO member institutions.
The TEG is co-chaired by representatives of the Bank for International
Settlements and the US Securities and Exchange Commission, supported by a
joint FSB and IOSCO Secretariat. In preparing these proposals, the TEG
analysed information from various sources and engaged with stakeholders.
The FSB coordinates at the international level the work of national
financial authorities and international standard-setting bodies and
develops and promotes the implementation of effective regulatory,
supervisory, and other financial sector policies in the interest of
financial stability. It brings together national authorities responsible
for financial stability in 24 countries and jurisdictions,
international financial institutions, sector-specific international
groupings of regulators and supervisors, and committees of central bank
experts. The FSB also conducts outreach with approximately 70 other
jurisdictions through its six Regional Consultative Groups.
