Aug 21 - Fitch sees the Federal Reserve's expansion of eligibility criteria for money market funds (MMFs) conducting reverse repo operations with the Fed as a further reflection of the important financial utility roles played by money funds. The multiple roles money funds play within the broader financial system underscore their importance beyond the fund industry. An Aug. 16 announcement by the New York Fed indicated that MMFs with assets exceeding $5 billion and meeting other eligibility criteria would be considered for future participation in reverse repo operations. Through these transactions with a small number of Fed counterparties, liquidity can be withdrawn from the financial system at the direction of the Federal Open Market Committee (FOMC). This will likely become an important monetary policy tool when the Fed seeks to tighten credit conditions. We see the broader eligibility criteria as potentially significant in that they allow MMFs to fill a void in reverse repo transactions with the Fed. As some primary dealers and government-sponsored enterprises (GSEs) become less important in Fed open market operations, the importance of MMFs could grow in response. Beyond their relationship with the Fed, MMFs remain important as a vehicle for corporate cash management. This is particularly true at a time when many corporate treasurers are looking for ways to limit excessive exposure to a single financial institution. Should regulation lead to changes in the availability of cash management options, treasurers will likely be forced to evaluate alternatives such as separately-managed accounts or private comingled pools. In addition, MMFs continue to account for a substantial share of volume in the tripartite repo market. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.