Bloomberg reports on the mutual fund industry’s proposal for socializing its costs:
Under the ICI plan, fees collected from money-market funds would be used to capitalize a state-chartered bank or trust. The facility would purchase holdings at face value from funds during a crisis. That could prevent a fund fielding heavy redemption requests from taking losses because it is forced to sell healthy holdings at a discount.
As a bank, it would also have access to the U.S. Federal Reserve’s discount lending window, according to the ICI, making taxpayers the ultimate backer of money-market funds’ liquidity.
Why on earth should the federal reserve allow money market funds indirect access to the discount window? So the banks continue to face undercapitalized competition for their deposits?
If the money market fund managers think they need access to the discount window, then they need to turn themselves into banks — and maintain the same capital positions that banks are required to maintain at every point in time. Hopefully Larry Fink’s opposition to this proposal (per Bloomberg) means the Fed won’t be pressured to take it seriously.
Synthetic Assets 