FSB offers proposals to strengthen the resilience of MMFs

The Financial Stability Board (FSB) has released a series of policy proposals aimed at strengthening the resilience of money market funds (MMFs).

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Recommendations designed to deal with the potential for destabilizing redemptions include the initiation of swing pricing and a minimum balance at risk while creating a capital cushion. The FSB also recommends removing the links between regulatory thresholds, the imposition of fees and barriers and the removal of stable net asset value.

“Policies aimed at strengthening the resilience of MMFs could be accompanied by additional reforms in two areas,” the FSB said. “The first concerns policies such as stress testing and transparency requirements on [short-term funding markets] and their participants. The second area involves measures to improve the functioning of the underlying STFMs.

FSB would take stock of progress made by jurisdictions by 2023 and by 2026 would assess the effectiveness of measures taken on MMF reform, FSB President Randal Quarles said in coordination with the Organization international securities commissions.

“As the global economy continues to recover from the COVID-19 epidemic and the containment measures put in place by many governments, the Financial Stability Board has moved from crisis management to reflecting on lessons important things we’ve learned and to refine our focus on the road ahead, ”Quarles wrote. “The work we are submitting to the G20 focuses on these lessons for financial stability. This body of work presents promising tools to address vulnerabilities, identifies concrete steps that can be taken to improve the resilience of non-bank financial intermediation (NBFI), and reflects a consensus around areas requiring continued vigilance.

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