CORRECTION: Money-Market Funds Weaken Financial System, Volcker Says
(RTTNews) - (adds citation, recasts to clarify source)
Former Federal Reserve Bank Chairman Paul Volcker recently said that money-market mutual funds undermine the stability of the U.S. financial system and should be regulated like banks.
In an interview with Bloomberg News, Volcker said he feels that banks should not be put at a competitive disadvantage to the unregulated money market funds, and that banks should be protected in order to ensure a stable financial system in the future.
"Banks remain the functioning heart of the financial system, and they are protected and regulated," Volcker told Bloomberg.
Money-market mutual funds are the largest buyer of commercial paper and have developed into a $3.5 trillion stock of cash outside the banking industry. They provide short-term funding to companies and financial institutions at rates below conventional loans.
Money-market funds, because they aren't bound by regulations such as federal insurance requirements on deposits and reserves on loans, can provide cheaper financing for investors.
But Volcker, who has been serving as the chairman of the Obama Administration's Economic Recovery Advisory Board, has been an advocate of imposing bank-like regulatory requirements on money funds, Bloomberg reports.
Volcker served as chairman of the Fed from 1979 through 1987, during the Carter and Reagan Administrations, and is credited with taking great steps to curb inflation in the U.S. economy.
A change in money-market fund policy might come in September. The President's Working Group on Financial Markets will issue a report on the industry on September 15. The Obama Administration directed the group in June to find out whether money-market funds should be forced to abandon the practice of maintaining a $1 net asset value, or whether they should be required to set up emergency liquidity facilities.
For comments and feedback: contact editorial@rttnews.com
Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved
Former Federal Reserve Bank Chairman Paul Volcker recently said that money-market mutual funds undermine the stability of the U.S. financial system and should be regulated like banks.
In an interview with Bloomberg News, Volcker said he feels that banks should not be put at a competitive disadvantage to the unregulated money market funds, and that banks should be protected in order to ensure a stable financial system in the future.
"Banks remain the functioning heart of the financial system, and they are protected and regulated," Volcker told Bloomberg.
Money-market mutual funds are the largest buyer of commercial paper and have developed into a $3.5 trillion stock of cash outside the banking industry. They provide short-term funding to companies and financial institutions at rates below conventional loans.
Money-market funds, because they aren't bound by regulations such as federal insurance requirements on deposits and reserves on loans, can provide cheaper financing for investors.
But Volcker, who has been serving as the chairman of the Obama Administration's Economic Recovery Advisory Board, has been an advocate of imposing bank-like regulatory requirements on money funds, Bloomberg reports.
Volcker served as chairman of the Fed from 1979 through 1987, during the Carter and Reagan Administrations, and is credited with taking great steps to curb inflation in the U.S. economy.
A change in money-market fund policy might come in September. The President's Working Group on Financial Markets will issue a report on the industry on September 15. The Obama Administration directed the group in June to find out whether money-market funds should be forced to abandon the practice of maintaining a $1 net asset value, or whether they should be required to set up emergency liquidity facilities.
For comments and feedback: contact editorial@rttnews.com
Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved
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