(Adds money fund reform in FOMC minutes in paragraphs 9, 10)
NEW YORK Oct 12 Assets of U.S. prime money
market funds fell further in the latest week in advance of the
final phase of reform for the money fund industry, which takes
effect on Friday, the Money Fund Report said on Wednesday.
To win exemption from the new Securities and Exchange
Commission rules, a number of institutional prime money funds
have converted to funds that own only U.S. government
These rules, on share value and fees, are the final phase of
domestic money fund reform that is intended to safeguard a
sector rattled by the collapse of Lehman Brothers in September
2008 during the global credit crunch.
Money in institutional prime funds, which can invest in
riskier securities in addition to government debt, declined by
$57.84 billion to $165.49 billion in the week ended Oct. 11.
In the prior week, their assets fell by $122.30 billion, the
largest single-week drop since Reserve Primary Fund's share
value fell below $1 or "broke the buck" shortly after Lehman's
Under the upcoming SEC rules, institutional prime funds must
allow their share price to "float" from $1 and/or impose fees
and limit redemptions during times of market turbulence like
that experienced during the financial crisis.
Corporate treasurers and cash investors are said to dislike
these new features since they have used prime money funds as
alternatives to bank accounts.
Short-term corporate borrowing costs have risen with the
contraction of institutional prime funds. These funds had been
major buyers of commercial paper and other short-term debt from
banks and other corporations, which use proceeds to fund trades
or finance payrolls and inventories.
The Federal Reserve has taken notice of higher borrowing
costs resulting from the conversion of prime money funds.
"Anticipation of the impending deadline for compliance with
MMF (money market fund) reform measures continued to prompt net
outflows from prime MMFs and put upward pressure on some term
money market rates," the Fed minutes on its Sept 20-21 meeting
released on Wednesday showed.
Institutional government-only funds took in $42.82 billion,
raising their total assets to $1.549 trillion in the latest
Since October 2015, institutional investors and fund
managers have shifted about $1 trillion of assets into
government-only funds from prime funds.
In the latest week, overall fund assets decreased by $18.83
billion to $2.604 trillion, according to the report, published
(Reporting by Richard Leong; Eiting by Steve Orlofsky)