Are Money Market Mutual Funds a Shadow Bank?
Yes and no. By design, they are short-term debt instruments. Cash comes in and is lent to commercial borrowers in need of a short-term loan – usually less than thirteen months. This activity, according to former Federal Reserve chairman Paul Volker, who now works as an economic adviser to President Obama is done without the regulation needed to protect the consumer should a large lender default on that loan. The overall worth of money market funds is around $3.5 trillion. Because the loans these funds offer thousands of borrowers are at a lower rate than those offered by banks and often for a shorter term, Mr. Volker believes that the industry needs to be insured much the same way banks are. Volker has His Reasons Back in September of 2008, just as Lehman Brothers and Bear Stearns shook the financial world, one with a bailout the other with a failure. a money market fund made headlines when it “broke the buck”. Money market funds seek to maintain that net asset value of one dollar, off
Yes and no. By design, they are short-term debt instruments. Cash comes in and is lent to commercial borrowers in need of a short-term loan – usually less than thirteen months. This activity, according to former Federal Reserve chairman Paul Volker, who now works as an economic adviser to President Obama is done without the regulation needed to protect the consumer should a large lender default on that loan. The overall worth of money market funds is around $3.5 trillion. Because the loans these funds offer thousands of borrowers are at a lower rate than those offered by banks and often for a shorter term, Mr. Volker believes that the industry needs to be insured much the same way banks are. Volker has His Reasons Back in September of 2008, just as Lehman Brothers and Bear Stearns shook the financial world, one with a bailout the other with a failure. a money market fund made headlines when it “broke the buck”. Money market funds seek to maintain that net asset value of one dollar, off
