The presidents of the twelve Federal Reserve Banks have submitted a joint letter responding to the Financial Stability Oversight Council's proposal on money market mutual fund (MMF) reform.
The twelve Reserve Bank presidents support the Council's efforts to address the structural vulnerabilities of MMFs. They also agree with the Council's determination that MMFs' activities and practices could create or increase the risk of liquidity and credit problems spreading through the financial system.
“Money market mutual funds have no explicit capacity to absorb losses in the event of a decrease in the value of assets held within the fund’s portfolio,” said the Reserve Bank presidents in their joint letter. “This structure gives rise to a risk of destabilizing money market mutual fund runs by creating a first mover advantage.”
In the letter (available at http://www.bostonfed.org/news/press/2013/pr021213.pdf ) the Reserve Bank presidents:
Our Financial Structures – Are They Prepared for Financial Instability?
Remarks by Boston Fed President Eric Rosengren, June 29, 2012
Money Market Mutual Funds and Financial Stability
Remarks by Boston Fed President Eric Rosengren, April 11, 2012