OFR report: Vulnerabilities remain in money market funds

140px-US-DeptOfTheTreasury-Seal.svgA recent report from the U.S. Treasury’s Office of Financial Research found that while threats to stability have declined since the financial crisis, risks remain in money market funds and similar cash sources in short-term funding markets.

“Although regulators have begun to address vulnerabilities leading to the risk of runs on repo and money market funds, we believe that better tools are needed,” the OFR, which was created under the 2010 Dodd-Frank Act to monitor threats to financial stability, said in the report.

The report was critical of the SEC’s proposal to require prime money market funds to impose liquidity fees or restrictions that may reduce the risk of runs. The OFR said the strategy “may perversely make money funds more subject to run risk as investors attempt to be the first to exit.”

Additionally, the report pointed to a data gap that could make it harder for regulators to more consistently monitor assets held in fund portfolios.

“In practice, regulators face a time lag when monitoring asset holdings,” the OFR said. “Although asset holdings are available from the SEC through Form N-MFP, the Office has limited information on the secondary-market trading of money market fund assets because some market data are available only to registered traders.”

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