Bank of England pushes for reshuffle of $ 6.9 trillion money market activity

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Mr Bailey said there is a need to improve the resilience and functioning of funds so that they do not contribute to stress in short-term funding markets.

Sterling money market funds saw outflows of around £ 25 billion ($ 35 billion), or 10% of their total assets, in the eight days between March 12 and March 20 of the last year – a period known as the cash dash.

To mitigate the damage, the Bank of England and other central banks pumped billions into the financial system as part of quantitative easing, and also activated pensions and other liquidity facilities. Turning “the fire hoses on full blast” has helped bring rates back to a more normal level, Bailey said.

“The race for liquidity has been an unwelcome reminder that the post-financial crisis has not finished the job and left a dangerous gap in our exposure to the risk of financial instability,” Bailey said. “We have to complete the task this time.”

Mr Bailey suggested a number of possible reforms, including limited holdings of assets in government instruments, the removal of liquidity mismatch by making non-daily transactions of funds, or “an intermediate option in which a combination of measures is used to reduce the risk to a sufficiently low level. level. “

The FSB said MMFs support the economy both by providing investors with a cash management tool and by working as a source of finance for businesses and governments. After 2008, standards were tightened on risk assessment, timelines and requirements.

The unrest of March 2020 mainly affected funds based in the United States and the European Union, the FSB said. Other jurisdictions did not report a significant impact.

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