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The Minimum Balance at Risk: A Proposal to Stabilize Money Market Funds

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Abstract

In a June post, we explained why the design of money market funds (MMFs) makes them prone to runs and thereby contributes to financial instability. Today, we outline a proposal for strengthening MMFs that we?ve put forward in a recent New York Fed staff report. The proposal aims to reduce, and possibly eliminate, the incentive for investors to run from a troubled fund, while retaining the defining features of money market funds that make them popular financial products. U.S. Treasury Secretary Timothy Geithner, in a recent letter to the Financial Stability Oversight Council, requested that it consider an idea similar to what we described in our staff report as one of several potential options for reforming MMFs to address their structural vulnerabilities.

Suggested Citation

  • Marco Cipriani & Michael Holscher & Antoine Martin & Patrick E. McCabe, 2012. "The Minimum Balance at Risk: A Proposal to Stabilize Money Market Funds," Liberty Street Economics 20121015, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86833
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    More about this item

    Keywords

    Runs; Money Market Funds; Minimum Balance at Risk;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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