Money market mutual funds contributed to the instability of the financial system and should not exist in their current form, said Paul McCulley, a managing director at PIMCO, at a Levy Economics Institute conference last week.
McCulley, who runs PIMCO's approximately $500 million money market fund, said the temporary run on money funds in the wake of the collapse of Lehman Brothers in 2008 showed that money funds need an emergency capital backstop to prevent future runs. If such a backstop is granted, the funds should be regulated like banks, he said.
McCulley's remarks followed a call by former Federal Reserve Chairman Paul Volcker for tighter restrictions on the types of assets in which money funds can invest.
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