Patomak Global Partners Chief Executive Paul Atkins and Senior Advisor Craig Lewis submitted a comment letter to the Financial Stability Board (FSB) this week regarding its money market fund (MMF) regulation consultation report.
The comment letter describes the critical role MMFs play as a cash management tool and as a buyer of commercial paper issued by non-U.S. banks. It also provides data to show that MMFs were largely resilient during March 2020 market events and explains why large-scale redemptions from certain MMFs can generally be explained as an unintended consequence of a 2014 SEC regulatory threshold for gating and liquidity fees. Removing this threshold in favor of discretionary gating would go a long way toward addressing valid concerns about the stress-amplifying role that some institutional prime MMFs can play. Atkins and Lewis conclude that to directly address concerns about systemic risks related to short-term lending market risks, however, regulators should focus on improving banking sector regulations.