July 7, 2020 / 3:19 PM / in a month

Money funds need regulating like banks, says BoE policymaker

LONDON, July 7 (Reuters) - Money market funds need tougher rules like capital requirements to keep them stable in rocky markets, a Bank of England policymaker said on Tuesday.

Money market funds suffered heavy withdrawals during the COVID-19 market shock in March. They avoided having to temporarily close after central banks injected liquidity into markets during a so-called “dash for cash”.

“A money fund is very much like a bank. They say they take no credit risks, but we know they take liquidity risk and yet they hold no capital,” Anil Kashyap, a member of the BoE’s Financial Policy Committee (FPC), told the Peterson Institute in Washington.

“We have got to do something, we can’t just leave it...I would be happy to see them have to hold capital, or specify that their sponsors have to step in, or something,” he said.

“We are in a situation where we pretend there is no risk.”

Regulators in the United States outside the Federal Reserve took a narrow view of their job and had no wider systemic risk perspective, Kashyap said in the latest sign of tension between central banks and securities watchdogs over regulating funds.

The FPC is due to publish its latest thinking on the funds sector on Aug. 6. (Reporting by Huw Jones Editing by Mark Heinrich)

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