Bank of England piles pressure on money market funds to bolster liquidity

LONDON, Oct 10 (Reuters) – The Bank of England said on Tuesday that money market funds should hold “significantly” higher amounts of liquid assets to cope with market volatility after the sector struggled with a “dash for cash” during the COVID-19 pandemic.

The BoE’s Financial Policy Committee said the 250 billion pound ($300 billion) sterling money market funds sector, widely used by companies for day-to-day funding and parking cash overnight, needs to be more resilient to shocks.

“Significantly more liquid assets than currently required is likely to be the most effective way to increase MMF resilience and so reduce risks to financial stability,” the BoE’s Financial Policy Committee said in a statement.

The FPC said staff analysis suggests that assets that mature within 7 days or less should make up at least 50% to 60% of a fund’s total assets. This compares with current levels of 45% to 55% across the sector.

MMFs are part of the wider non-bank sector, which has grown since the 2008 global financial crisis to represent about half the world’s financial assets, but is more opaque and complex than banking, making it harder for regulators to spot risks and how contagion could unfold.

Central banks had to inject liquidity in markets as MMFs struggled in the face of heavy redemptions when economies went into pandemic lockdowns in March 2020, but the funds industry has said many other parts of the market were under strain too at the time.

The BoE, along with global watchdogs like the Financial Stability Board and the U.S. Securities and Exchange Commission, is becoming increasingly concerned about the need to tackle the opacity and liquidity vulnerabilities in the sector.

Britain will need to cooperate with the European Union when regulating MMFs given that most sterling-denominated MMFs are listed in EU centres like Luxembourg.

The Bank pushed through tougher liquidity rules for liability-driven investment funds (LDI), used by pension funds, earlier this year after it had to intervene in the sector last September.

In a special report on fleshing out the FPC’s approach to assessing risks in market-based finance, it said it could enhance and review how it prioritizes risk assessment.

It could also consider “the potential role for macroprudential tools”, including where additional resilience standards may be needed for non-banks, a vast sector that includes investment funds, hedge funds, private equity, pension funds, and insurers.

The non-bank sector has long pushed back against being treated like banks with rules such as capital buffers, and regulators are largely focusing on bolstering liquidity.

Image by: Pexels

Shopping Cart

Media Kit

    Data Protection

    Personal Data (“Data”) submitted for Media Kit (“Media Kit”), and/or collected in the form of first name, last name, email address and other contact details may be used for the purposes of inviting you to future events and for reaching out to you with content which may be of interest to you. For these purposes, The Digital Banker will share the Data with our associate companies (including event and content sponsors) to promote their products and services. You will also be automatically subscribed as a user on www.thedigitalbanker.com. If you would like to opt-out, email us at [email protected].

    By clicking Submit, you acknowledge that you consent/ have sufficient informed consent to the collection, use and disclosure of Data as set out above.

    The Digital Banker Summit

    Moving on from FTX: is 2023 the year of CBDCs?

    Indonesia, Jakarta

    Thailand, Bangkok

    Philippines, Manila

    Contact Us

      Data Protection

      The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

      Request Nomination Pack

        Data Protection

        The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

        Registration Form

          Data Protection

          The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

          Registration Form

            Data Protection

            The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

            Registration Form

              Data Protection

              The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

              Registration Form

                Data Protection

                The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

                Registration Form

                  Data Protection

                  The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

                  The world’s preeminent Private Banks and Wealth Managers are demonstrating a committed drive in innovation, advisory, new products and services to meet the sophisticated needs of their clients.

                  COVID-19
                  Amid economic activity revival on the back of the Covid-19 vaccine program, organisations moving from business continuity plans to stable working environments, together with the slightest improvement in unemployment numbers, forced the world to adjust to new realities. Coming to terms with the “new normal”, global investors are now on the look-out for attractive and stable investment opportunities.

                  Needs of Private Wealth customers and families worldwide have drastically changed due to the pandemic and banks have had to accelerate efforts to deploy a multi-channel service strategy and safeguard clients’ businesses and wealth against negative impacts of economic uncertainly.

                  The Global Private Banking Innovation Awards will recognise the world’s best private banks, wealth managers and asset managers that are championing innovation across advisory, service, products, customer experience and more.

                  Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. 

                  Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

                  Request Nomination Pack

                  Error: Contact form not found.