The last big post-Lehman regulatory change is reverberating across the financial system, potentially squeezing short-term lending for businesses and local governments.
The rules haven’t taken effect yet but are already upending the $2.7 trillion money-market industry, causing nearly $500 billion to move into, out of and among these funds, which are used by investors to stash their cash and by borrowers for short-term liquidity.
While some indicators are showing tightness in short-term markets, any cracks caused by the flows of cash have been filled quickly by central-bank-generated liquidity. The concern among borrowers is what happens when things are back to normal and stress picks up. The broader worry is that the new rules will reduce lending and become a drag, however modest, on the overall economy.