It’s been a little over three years since the Reserve Primary Money Market Fund “broke the buck,” and Sallie Krawcheck took to the pages of The Wall Street Journal on Wednesday to reveal surprising–and frightening–facts about the stability of the money-market fund industry since.
Krawcheck (left), the controversial former head of wealth management at Bank of America and Citigroup began by noting that the Securities and Exchange Commission is finishing a proposal to increase regulation on money-market funds, which reportedly have combined assets of $2.7 trillion.
“The SEC’s aim is to reduce the risk of a meltdown in the event of another 2008-style panic,” she writes. “Its proposal is said to include mandating capital backing for money funds and ending their convention of reporting assets at a fixed $1 net asset value–instead having it “float” to represent the funds’ underlying value, as with other mutual funds.”
Krawcheck then uncovers some of the investments money funds are making, and doesn’t like what she sees.
“Notwithstanding SEC actions since 2008, [investors’] funds may not be fully safe,” she explains. “They don’t know that as recently as last summer, the largest money funds averaged 45% of their investments in European bank paper, with one major player at just under 70%. They don’t know that, were the investments to falter, half of the top 10 money-fund providers are not large and presumably well-capitalized banks but instead asset managers that don’t have anything like banks’ capital resources. “