12 May 2021 – Andrew Bailey, Governor, Bank of Englad explains how Money Market Funds magnified some of the economic shocks caused by the Covid 19 pandemic. He also discusses the ways regulators around the world can coordinate to make Money Market Funds more resilient in future.

Extract:

In order to create a framework for reforms, it is important to set out clearly the principles that should shape the changes. The following principles – while not intended as prescriptive rules – are I think helpful in this respect:

  1. As a general principle for all funds – investment and money market – redemption terms should be aligned with the underlying liquidity of assets.
  2. Where investors regard funds as cash-like, they should be made resilient so they can operate as such at all times, which means running minimal maturity mismatch risk.
  3. Money market funds should not hold less liquid assets on a scale that would make them more suitable to be traditional investment funds.
  4. Money market funds should not be designed with regulatory thresholds or cliff-edges which create adverse incentives and amplify first-mover advantage behaviour.
  5. Reforms should improve the ability of funds to support short-term funding markets, including by making them more resilient.

Full speech available here