New Money Market Fund regulations which went into effect October 14, 2016 were intended to prevent future bailouts and enhance market stability. Instead, they have disrupted financial markets, hurt business and municipal borrowers, and increased U.S. taxpayer bailout exposure in future market stress events.
While there are winners and losers with any regulatory change, the magnitude of the shifts in this case are massive. Private sector and municipal sector borrowers lost $1.2 trillion of available funding while the Federal government and its agencies reaped the gains.
These are not the outcomes Congress or the SEC intended. There was never an objective to advantage the Federal government at the expense of the private sector and municipal entities.
In retrospect, we can see which aspects of the new regulations caused the negative consequences and suggest corrections to address them.
In this paper, we examine the Money Market Fund (MMF) regulation changes and the $1.2+ trillion in fund flows that resulted from them since 2014.