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of Financial Stability Board He said regulations governing money market funds need to be strengthened.
The group’s thematic review of money market fund (MMF) reform, published on Tuesday (27 February), found that the biggest vulnerability facing these funds is the ability to convert investments into cash to meet investment demand. It turned out to be difficult to adapt.
“The main vulnerability identified is the mismatch between the liquidity of money market fund holdings and the redemption terms offered to investors, making money market funds vulnerable to sudden and disruptive redemptions. “They are more susceptible to panic buying,” the report said.
The possibility of money market funds pausing or stopping redemption requests could cause large ramifications throughout the broader economy, according to the report.
“Investors and businesses that lose access to cash holdings in money market funds may be unable to make business-critical payments such as margin calls and payroll,” the report said. “This contagion effect can also emanate from the money market fund industry, which is only a small portion of the overall fund sector in a jurisdiction.”
Overall, money market funds can cause shocks within the financial system, especially if they have significant connections to other parts of the financial system or the real economy, the report added.
In its report, the FSB also noted that addressing money market fund vulnerabilities is a key part of efforts to “strengthen the resilience of non-bank financial intermediaries.”
This comes as several regulators around the world are calling for increased oversight of the non-bank financial system.
For example, Bank of England Deputy Governor Sarah Breeden announced earlier this week that further scrutiny of non-bank lenders would be sought to prevent a “credit crunch” that could result from withdrawals by hedge funds, pension funds, asset managers and insurance companies. I called out.
Breeden said, “If market-based finance changes the willingness to lend to companies, especially those that are considered to be highly leveraged, this is a credit crunch caused by market-based finance rather than bank lending, and will have a significant impact on the real economy. I will give it.” During a Bank of England meeting.
Meanwhile, the FSB plans to submit a report to the G20 later this year highlighting the influence of social media in accelerating bank deposit outflows and the need for changes to liquidity rules, PYMNTS wrote in January.
The investigation followed the collapse of Silicon Valley Bank last March due to a rapid leak fueled in part by social media posts.
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