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The
group laid out several potential changes to those markets, in
which the U.S. government intervened to stabilize after big
outflows prompted by the coronavirus outbreak in March.
Ideas included setting stricter rules around fund redemptions,
or higher capital buffers for such funds, but the group said it
was not favoring any specific approach.
"The events of March 2020 show that more work is needed to
reduce the risk that structural vulnerabilities... will lead to
or exacerbate stresses in short-term funding markets," said the
Presidential Working Group on Financial Markets.
The report could kick off a broader effort to overhaul money
market funds. Former Federal Reserve Chair and incoming Treasury
Secretary Janet Yellen is expected to review so-called "shadow
banking," which includes such funds, analysts said.
"Yellen is in a good position to tackle this problem. She knows
where all the bodies are buried in short-term funding markets,"
said Tom Graff, head of fixed income and portfolio manager at
Brown Advisory.
In March, short-term funding seized up with a massive sell-off
in U.S. markets. Among institutional and retail prime money
market funds, which allow daily redemptions while holding less
liquid short-term assets, outflows as a percentage of fund
assets exceeded that of the September 2008 crisis.
The crunch prompted the Fed to buy $1.6 trillion in Treasuries
and take other measures to stabilize the markets.
Mark Cabana, head of U.S. rates strategy at Bank of America,
said he believed some of the ideas explored in the report would
help relieve future stress. He added that while discussions were
in early stages, the report was "an important step in advancing
reforms."
(Reporting by Pete Schroeder; Editing by Richard Chang and Dan
Grebler)
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