Money Market Funds and the 2020 COVID Crisis

Abstract

This report by the Committee on Capital Markets Regulation (the “Committee”) examines the role of money market funds (“MMFs”) in the March 2020 COVID crisis and sets forth reforms that would enhance the liquidity of MMFs that primarily invest in short-term private debt securities (“prime MMFs”). The Committee’s recommendations are intended to significantly reduce the likelihood that government intervention to support prime MMFs will be necessary in a future crisis.In Part I, we provide an overview of MMF regulation, trends in MMF assets under management (“AUM”), and role of prime MMFs in providing short-term funding to the financial system. In Part II, we survey the role of prime MMFs in the 2008 and 2020 crises, including the size of withdrawals and government support provided by the Federal Reserve and U.S. Treasury Department. In Part III, we examine the cause of the withdrawals on prime MMFs in 2020 and evaluate the risk that prime MMFs could pose for the financial system. In Part IV, we evaluate policy reforms to prime MMFs that would enhance their resiliency and reduce the likelihood of future government support. We then set forth recommendations for enhancing the resiliency of prime MMFs.