Attempting to Standardize “Money Market Fund” Worldwide

There has been talk recently about changing the regulations governing U.S. money market mutual funds in the United States, the mother of all money market mutual fund marketplaces with 63% of the worldwide $5.4 trillion in money fund assets. What some fail to appreciate, however, is how much better U.S. money market funds fared than every single one of their “cash” counterparts, particularly when compared to Europe’s cash offerings.

Bank savings, reserve accounts, enhanced cash, ultra-short, auction rate … everything got savaged. Though U.S. money funds had a number of bailouts and one “breaking of the buck”, the total amount of damage was significantly less severe than practically every other locale and sector. The money fund regulations truly proved their mettle.

What became painfully clear during the Subprime Liquidity Crisis, however, is the threat of contagion. When Reserve Fund broke the buck, it brought into question every similar institutional money fund. Many forget that money market funds originally came under duress due to problems in “enhanced” funds in Europe, specifically BNP and AXA Libor Plus.

Additional concerns over “enhanced cash” funds, such as Columbia Strategic Cash, GE Enhanced Cash, Florida’s Local Government Investment Pool, etc., made it painfully clear that even in the U.S. the regulatory line dividing “money market funds” from other vehicles needed to be strengthened, not removed.

Europe in particular needs a Rule 2a-7, and it’s looking increasingly likely, primarily due to the fact that many who objected to the strict definition of “money market fund” are no longer around to protest.