Stricter Regulation of Money-Market Funds Discussed

 

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Federal Reserve Bank of Boston President Eric Rosengren called for greater regulatory oversight on the $2.5 trillion money-market fund industry to make it “less susceptible to credit shocks and liquidity runs,” the Wall Street Journal reports. Rosengren suggested that a few aggressive funds or even a single fund could trigger a run on the industry and destabilize credit markets.

In September 2008, the U.S. Treasury stepped in to back money-market funds over concerns funds might “break the buck” – falling below $1 or par value. The program expired after one year without any claims, but regulators are concerned about possible disruptions in an industry that is a crucial source of short-term financing for the U.S. economy.

Both Federal Reserve Bank of New York President William Dudley and former Federal Reserve Chairman Paul Volcker have also called recently for stronger oversight of money-market funds and other short-term lending markets. 

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