The Treasury Department is unlikely to extend the temporary money market fund insurance program that is set to expire Sept. 18, due to proposed regulations. Virtually all money funds initially participated in the program after it was first offered a year ago by paying a premium, but as markets stabilized, funds that invest in U.S. government securities bowed out.
“It’s extremely unlikely [the program will continue]. The whole idea is for it to quietly expire unnoticed,” Mercer Bullard, founder of Fund Democracy, told the San Francisco Chronicle.
Peter Crane of Crane Data agreed with Bullard, saying, “The industry feels that with government assistance would come a heavier regulatory hand.”
In addition, the money fund industry is awaiting new rules from the Securities and Exchange Commission designed to increase the resilience of these funds to economic stresses and reduce the risks of runs, Bullard noted. These would require money funds, for the first time, to disclose their holdings more frequently and hold a portion of their portfolio in cash or cash-equivalent securities as well as a higher portion of shorter-term securities. And their current ability to invest 5% of the portfolio in second-tier investments would be eliminated.
“The cash liquidity and disclosure proposals will definitely make funds less likely to break a dollar,” Bullard told The Chronicle. “But you are talking about going from a very, very small chance of breaking the dollar to a very, very, very, very small chance.”
Crane added: “Could we have another run? It’s always possible, but I don’t think the Fed, Treasury or other parties would allow that to occur. If needed, the Treasury guarantee program would be legislated into existence.”
The SEC has said its proposals would reduce money fund yields between two and four basis points, but Fidelity has countered that they would actually cost between 14 and 31 basis points. The SEC’s comment period for the proposed rules ended Sept. 9.