Toward newer several months, the fresh part of the FHLBs is much more advanced and requirements a description of two major regulating shifts: the SEC’s reform of money business mutual money (MMMFs), and also the advent of this new exchangeability conditions to own financial institutions.

Keep in mind you to definitely adopting the Lehman’s incapacity during the for the 2008, people began to flee out of MMMFs. To prevent the fresh new manage, the fresh U.S. Treasury guaranteed every $step 3.8 trillion within the a fantastic MMMF obligations. Even as we chatted about in earlier times (find here), MMMFs functioned similar to banking companies engaged in new conversion process out-of exchangeability, borrowing from the bank and you may (somewhat) maturity. Exactly like finance companies one to redeem deposits within par value, it promised dealers a fixed display value of $step 1 (good buck) with the consult. Thus, in the event the Put aside No. 1 Financing bankrupt the fresh new dollar (from the neglecting to receive at $step 1 face value) inside the , MMMF investors panicked.

From inside the 2014, once ample prodding throughout the Monetary Balances Oversight Council, the fresh new SEC fundamentally suggested an excellent MMMF reform that went towards perception inside the mid-. It entails institutional perfect MMMFs to run like many shared finance having a floating net asset really worth (NAV). Importantly, yet not, it exempts MMMFs one to invest mostly inside federal government and you can agency bonds, and additionally that from the fresh FHLBs. Needless to say, dealers weren’t excited on concept of which have drifting NAVs, so that they shifted regarding best institutional money in order to bodies money. When you look at the 2014, government MMMFs accounted for more or less that-3rd of one’s $3 trillion complete. Continue reading →