The Group of Thirty Report: Misconceptions About Money Market Funds

Abstract

The Group of Thirty in 2009 issued a report entitled “Financial Reform: A Framework for Financial Stability.” The Report highlights concerns about vulnerabilities in the financial system that became evident in the 2008-2009 financial crisis and includes wide-ranging recommendations for financial regulatory reform. The main theme of the Report is the importance of containing systemic risk and maintaining close oversight of “systemically important” financial institutions. The Report's recommendations concerning money market funds are based on the misconceptions that money funds are bank-like, pose systemic risk, are not adequately regulated, and enjoy unfair competitive advantages over banks. The Report would apply inappropriate bank-like regulation to money fund operations without any analysis of the consequences. If the Report’s recommendations were adopted, money market funds would cease to exist and the U.S. financial markets would lose a vital source of liquidity and efficiency.This paper examines the Report’s recommendations, analyzes their potential consequences, and attempts to correct the misconceptions upon which they are based.