Home Viewpoints

TOPICS
401(k)
Bond Fund
Bonds
Commodity Investments
Corporate Bonds
Cybersecurity
Equity Fund
Equity Investing
Europe
Events
Exchange-Traded Funds
Federal Reserve
Financial Markets
Financial Stability
Fixed Income
Fund Governance
Fund Regulation
GMM
Global
Government Affairs
ICI Global
IDC
IRA
Index Fund
Interest Rate
International
Investment Education
Investor Research
Money Market Funds
Mutual Fund
Operations and Technology
Policy Research
Proxy Voting
Retirement Policy
Retirement Research
Savings
Shareholder
Target Date Funds
Taxes
Trading
Treasury
ARCHIVE
Pointing Fingers at Index Funds Won’t Explain Market Volatility
By Shelly Antoniewicz
February 14, 2018
With all the recent volatility in the US stock market, two questions are frequently being asked:
- Are fund investors fleeing the stock market?
- Are index funds causing market turbulence?
The short answer to both questions is no.
Experience and research show that investor flows to and from mutual funds and exchange-traded funds (ETFs) tend to track market returns. Historically, those flows have tended to constitute a small share of fund assets. Recent activity is no exception.
Yesterday, ICI published data showing that investors redeemed, on net, $21.8 billion in domestic equity ETF shares for the week ended Wednesday, February 7—a week that includes the sharp market drop of February 5. (Domestic equity ETFs are those that invest primarily in the stocks of companies listed on US stock exchanges.)
Figure 1
Last Week’s Net Redemptions of Domestic Equity ETFs Were Not Abnormally High
Percentage of previous month’s assets, weekly*
* Flow for the week ended February 7, 2018, is a percentage of December 2017 assets.
Source: Investment Company Institute
Though sizable in dollar terms, the $21.8 billion that investors redeemed from domestic equity ETFs is not large as a percentage of fund assets—in fact, it amounted to just 1.1 percent of the assets of domestic equity ETFs, as shown in Figure 1, above. That drop is not out of line with several other, far less memorable weeks in the past five years. In fact, the gold medal for the largest outflow on record goes to the $23.6 billion outflow recorded almost four years ago exactly, during the week ended February 5, 2014. Then, as now, the Winter Olympics were about to start, and market volatility jumped. But after two weeks of outflows, domestic equity ETFs resumed their growth.
Redemptions Don’t Drive Volatility
Some commentary has suggested that index funds—and ETFs in particular—have fueled market volatility. Once again, the data undermine that contention.
Investors, especially institutional investors, use ETFs to quickly and efficiently transfer and hedge risks. It’s therefore not surprising that during the recent market turbulence, ETF trading volumes rose—but so did the volume of company stocks traded, as Figure 2 shows. For example, on February 6, $266 billion worth of ETF shares exchanged hands, more than double the value traded on February 1.
Figure 2
Investors Use ETFs to Quickly and Efficiently Transfer and Hedge Risks
Total dollar value of shares traded on US equity markets, daily, billions*
Source: ICI calculations based on Bloomberg and CBOE Exchange data
But most of these trades represent investors exchanging shares of ETFs among themselves. Such trades, which occur in the secondary market, don’t “touch” the company stocks that ETFs hold—that only happens when there are net creations or redemptions of ETF shares. As noted earlier, for the week of February 7, redemptions of domestic equity ETFs totaled $21.8 billion, and represented a mere 1.2 percent of the $1.8 trillion in company stock that changed hands that week. In other words, while company stocks traded heavily, only a very small fraction of that volume can be attributed to ETFs.
Economic Developments Drive Volatility
Throughout history, macroeconomic events—not particular market instruments—have driven the direction and volatility of markets. The recent spike in volatility occurred because a higher-than-expected increase in wages stoked concerns that inflation could pick up, which could in turn lead the Federal Reserve to raise interest rates faster and further than previously anticipated.
As Figure 3 shows, volatility spikes when the world turns uncertain—regardless of the level of index fund assets. In contrast, market volatility was notably subdued from 2012 to 2017, even though assets in index funds grew from $2.5 trillion to $6.7 trillion.
Figure 3
Equity Market Volatility Is Driven by Macroeconomic Events
Annualized 30-day realized volatility of S&P 500*
* As measured by the 30-day rolling standard deviation of daily returns on the S&P 500 index; 2018 data are as of February 9.
Note: Index fund asset data include ETFs and index mutual funds.
Sources: Investment Company Institute and Bloomberg
Despite their recent rapid growth, index funds remain a relatively small part of US stock markets, as shown by Figure 4. At year-end 2017, index mutual funds and index ETFs held only 13 percent of US stock market capitalization—far less than the 40 percent figure reported by some sources. Actively managed mutual funds and actively managed ETFs held another 17 percent, while other holders—including hedge funds, pension funds, life insurance companies, individuals, and others—held the remaining 70 percent of US stocks.
Figure 4
Index Fund Share of US Stock Market Is Small
Percentage of US stock market capitalization held by mutual funds, ETFs,* and other holders
* Note: Prior to October 2009, data for index ETFs include a small number of actively managed ETFs.
Sources: Investment Company Institute and World Federation of Exchanges
Market turmoil can be dramatic and unsettling, and it’s natural for commentators and the press to look for causes and consequences. But it’s wrong to assign responsibility for the market’s movements to specific investing vehicles, such as index funds. And it’s wrong to assume that fund investors react to market moves with panic. Time and again, history has proven that they don’t.
Shelly Antoniewicz is ICI senior director of industry and financial analysis.
Permalink: https://www.ici.org/viewpoints/view_18_index_volatility
TOPICS: Equity InvestingExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityIndex FundInterest RateInvestor ResearchMutual FundTrading
Average Expense Ratios for Long-Term Mutual Funds Continued to Decrease in 2016
By Morris Mitler and Sean Collins
May 23, 2017
ICI recently released its report on the expense ratios of mutual funds: “Trends in the Expenses and Fees of Funds, 2016.” This is ICI's first report that also summarizes expense ratios for exchange-traded funds (ETFs).
TOPICS: Bond FundEquity InvestingExchange-Traded FundsFederal ReserveFixed IncomeInterest RateMoney Market FundsMutual Fund
What's the “Exposure” of Money Market Funds to Europe?
By Sean Collins
January 26, 2017
At the American Economic Association (AEA) meetings in Chicago early this month, speakers and attendees at several sessions asked: do money market funds pose systemic risks?
TOPICS: EuropeFederal ReserveFinancial MarketsFinancial StabilityFund RegulationInternationalMoney Market FundsMutual Fund
The Taper Tantrum—Take II
By Shelly Antoniewicz
December 13, 2016
Long-term interest rates in the United States have been on the rise since summer 2016—slowly creeping up from July through October, and then jumping after the presidential election. Thus far, the response from bond mutual fund investors has been subdued. Nevertheless, various commentators—from the vice chairman of the Federal Reserve Board to the multinational Financial Stability Board—have expressed concerns that bond fund investors may rush to redeem shares to avoid portfolio losses stemming from unexpected increases in interest rates.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeFund RegulationInterest RateMutual FundTreasury
Matching Models to Reality: Bond Market Investors Don’t Follow the “First-Mover” Script
By Brian Reid
July 18, 2016
Fourth in a series of ICI Viewpoints testing the hypotheses of academics and regulators about mutual fund and investor behavior during times of market stress.
Regulators and researchers have put forward a common narrative that fund investors can destabilize markets during a period of market stress. They have advanced several hypotheses—including the concept of a first-mover advantage—to support their narrative. These hypotheses produce testable predictions about how fund investors behave in troubled markets: not only will investors redeem their fund shares but they also will stop purchasing new fund shares, thus creating large destabilizing net outflows from funds.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
Matching Models to Reality: In a Falling Market, the Real “Movers” May Be...the Buyers
By Brian Reid
July 15, 2016
Third in a series of ICI Viewpoints testing the hypotheses of academics and regulators about mutual fund and investor behavior during times of market stress.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
Matching Models to Reality: The Real-World Challenges to Regulators’ “First-Mover” Hypothesis
By Sean Collins
July 14, 2016
Commentators have long predicted that, one of these days, a market downturn will send U.S. mutual fund investors racing for the exits.
TOPICS: Bond FundBondsFederal ReserveFinancial StabilityFixed IncomeInterest RateMutual Fund
A Changing Landscape for the Fund Industry—and Fund Investors
By Rob Elson
May 27, 2016
Continue to expect change in the investment landscape, with the Federal Reserve, the Millennial generation, and technological evolution all playing major roles.
TOPICS: EventsFederal ReserveFinancial MarketsGMMInterest RateMutual Fund
The “Waterfall Theory” of Liquidity Management Doesn’t Hold Water
By Sean Collins and Chris Plantier
March 9, 2016
In a series of recent blog posts, economists at the Federal Reserve Bank of New York have discussed new research assessing the potential for bond mutual funds to pose systemic risks.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
MetLife Case Shows That “Assuming the Worst of the Worst of the Worst” Doesn’t Work
By Mike McNamee
February 24, 2016
If regulators are going to impose strict rules and heavy burdens on a business, should they have to demonstrate that those rules and burdens address an actual and probable risk?
TOPICS: Bond FundBondsFederal ReserveFinancial StabilityFund RegulationGovernment AffairsMutual Fund
New Research by New York Fed Confirms: Bond Funds Don’t Pose Systemic Risks
By Chris Plantier and Sean Collins
February 23, 2016
In a series of recent blog posts, economists at the Federal Reserve Bank of New York discussed results from a theoretical model assessing the potential for bond mutual funds to pose systemic risks.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
How SIFI Designation Could Undermine Fund Governance: Parsing the Fed’s Proposal for GE Capital
By Paul Schott Stevens
June 16, 2015
Fund boards and independent directors have a long history of serving shareholder interests, yet today they face an alarming prospect that could threaten their ability to continue doing so.
TOPICS: Federal ReserveFinancial StabilityFund GovernanceFund RegulationMutual FundShareholderTreasury
SEC Chair White Affirms Agency Has Tools to Address Risks in Industry
By Rachel McTague
May 8, 2015
The U.S. Securities and Exchange Commission (SEC) has the tools it needs to address systemic risks to the extent they exist in the asset management industry, said SEC Chair Mary Jo White at the opening session on the final day of ICI’s annual General Membership Meeting (GMM). White also announced that David Grim—who had been serving as acting director of the SEC’s Division of Investment Management—has just been named director of the division. White said she is thrilled that Grim, a 20-year veteran of the SEC in the investment management area, is taking the reins at a time when the Commission is moving forward to implement proactive regulations for the industry.
TOPICS: BondsCybersecurityEuropeEventsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationGMMGovernment AffairsInterest RateInternationalMutual FundShareholderTreasury
Opinion: The Tax Threat to Your Mutual Fund
By Mike McNamee
May 7, 2015
Vanguard Chairman and CEO Bill McNabb sent “an open letter to all mutual fund investors” in the opinion pages of Thursday’s Wall Street Journal. His message: fund investors face a clear threat of higher costs, weaker returns, and a bailout tax to salvage other failing financial institutions—all if regulators get their way in imposing new rules on funds or their managers.
TOPICS: 401(k)Federal ReserveFinancial MarketsFinancial StabilityFund RegulationMutual FundRetirement PolicySavingsShareholderTradingTreasury
Federal Reserve Reverse Repo Facility Helps Stabilize Short-Term Money Markets
By Chris Plantier
April 17, 2015
Following a pattern observed at the end of recent quarters, money market fund holdings of European issuers dropped at the end of March, although the decline was not as large as the previous quarter, ending December 2014. As we have noted before, for regulatory reasons European banks have been paring their balance sheets at the end of each quarter, resulting in a temporary decline in their desire to borrow from money market funds.
TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
Designation’s Vast Reach into Investor Portfolios
By Paul Schott Stevens
March 24, 2015
On Wednesday, March 25, I’ll testify before the Senate Committee on Banking, Housing, and Urban Affairs about the Financial Stability Oversight Council’s process for designating nonbank firms as “systemically important financial institutions,” or SIFIs.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundShareholderTreasury
Once Again, Information Moves Markets
By Sean Collins
March 18, 2015
Treasury yields fell sharply today and the stock market jumped. Wouldn’t it be nice if mutual funds could take credit? Unfortunately, they can’t. Any orders that mutual fund investors place to buy or sell shares anytime today before 4:00 p.m. won’t hit the market until 4:00 p.m., just like any other day. And, if you are reading this blog post at the time of its posting, 4:00 p.m. is still 10 minutes away.
TOPICS: Bond FundFederal ReserveFinancial MarketsFinancial StabilityInterest RateMutual FundTrading
Simple Answers to the Federal Reserve’s Quandaries
By Mike McNamee
February 24, 2015
The Federal Reserve System can’t get past its perplexities on the role of mutual funds in financial stability. Time and again, the Fed’s governors, regional presidents, and staff return to the same hypothetical risks and speculative scenarios in which mutual funds somehow pose a threat to the financial system.
TOPICS: Bond FundBondsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeMutual Fund
European Banks Borrow Less from MMFs; the Federal Reserve Borrows More
By Chris Plantier
January 20, 2015
As we discussed in April and July of last year, due to regulatory pressures European banks generally have become less willing to borrow from U.S. money market funds (MMFs), especially at the end of the quarter. This quarter-end effect was particularly large at the end of December 2014.
TOPICS: EuropeFederal ReserveMoney Market FundsTreasury
Plenty of Players Provide Liquidity for ETFs
By Shelly Antoniewicz
December 2, 2014
A recent article in the Financial Times’ FT Alphaville blog (“Lies, Damned Lies, and Liquidity Expectations”) focused on a paper published by the Committee on the Global Financial System, an organization that monitors developments in global financial markets for central bank governors.
TOPICS: Exchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityInternationalTrading
Bloomberg Ignores the Evidence on Bond ETFs
By Mike McNamee
September 26, 2014
In response to “Pimco ETF Probe Spotlighting $270 Billion Market Vexing FSB,” we posted the following comment on Bloomberg News’ website:
TOPICS: Bond FundBondsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationInterest RateInternationalTrading
Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: Are the Risks Systemic?
By Bob Grohowski
September 18, 2014
The Financial Stability Oversight Council (FSOC), the U.S. Treasury’s Office of Financial Research (OFR), and the Financial Stability Board (FSB) are charged with identifying systemic risks.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundTreasury
Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: Regulators’ Concerns
By Bob Grohowski
September 17, 2014
This post is the third in a series that focuses on securities lending by U.S. regulated funds—mutual funds, exchange traded funds (ETFs), and closed-end funds that are registered under the Investment Company Act of 1940.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundTreasury
Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: The Market
By Bob Grohowski and Sean Collins
September 16, 2014
As the potential risks of securities lending are discussed and debated by the Financial Stability Oversight Council (FSOC), the U.S. Treasury’s Office of Financial Research (OFR), and the Financial Stability Board (FSB), it is important to try to understand both the overall size of the securities lending market and the share of it attributable to different participants.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundTreasury
Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: The Basics
By Bob Grohowski
September 15, 2014
The Financial Stability Oversight Council (FSOC) recently announced that it has directed its staff to “undertake a more focused analysis of industry-wide products and activities to assess potential risks associated with the asset management industry.”
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundTreasury
“Preemptive Runs” and Money Market Fund Gates and Fees: Theory Meets Practice
By Sean Collins and Chris Plantier
August 20, 2014
A recent post on the blog of the Federal Reserve Bank of New York discusses the possibility that new rules by the Securities and Exchange Commission (SEC) allowing money market funds to temporarily impose fees or gates during times of market instability could increase the risk of preemptive runs on such funds during times of stress, rather than helping to limit destabilizing withdrawals, as the SEC intended.
TOPICS: EuropeFederal ReserveFinancial StabilityFund GovernanceFund RegulationGovernment AffairsInternationalMoney Market FundsTreasury
Living Wills and an Orderly Resolution Mechanism? A Poor Fit for Mutual Funds and Their Managers
By Frances Stadler and Rachel Graham
August 12, 2014
During the global financial crisis, the distress or disorderly failure of some large, complex, highly leveraged financial institutions (banks, insurance companies, and investment banks) required direct intervention by governments—including a number of bailouts—to stem the damage and prevent it from spreading. One focus of postcrisis reform efforts has been to ensure that regulators are better equipped to “resolve” a failing institution in a way that minimizes risks to the broader financial system, as well as costs to taxpayers. The new tools provided under the Dodd-Frank Act include requirements for the largest bank holding companies and nonbank systemically important financial institutions (SIFIs) to prepare comprehensive resolution plans in advance (known as “living wills”), and creation of a new “orderly resolution” mechanism for financial institutions whose default could threaten financial stability.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundShareholderTreasury
Across the Universe: Seeing the Whole Picture in the Systemic Risk Debate
By Paul Schott Stevens
July 30, 2014
Astrophysicists have discovered that they can’t account for the composition and behavior of the universe without including “dark matter”—matter that can’t be observed directly.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundShareholderTreasury
The Real Lessons to Be Learned from 1994’s Bond Market
By Brian Reid
July 29, 2014
A recent “Heard on the Street” column in the Wall Street Journal (“Heeding 1994's Bond-Market Lesson,” July 27, 2014) is correct in saying that there’s a lesson to be learned from the 1994 bond market—but it draws the wrong lesson.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeFund RegulationInterest RateMutual FundRetirement ResearchSavingsTradingTreasury
“The Age of Asset Management”—Less Risk, Not More
By Brian Reid
July 24, 2014
The following was written by ICI’s chief economist, Brian Reid, and published on FT Alphaville on July 23. For more information on ICI’s views and research on financial stability, please visit our Financial Stability Resource Center.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
European Banks Significantly Reduced Borrowing from U.S. Money Market Funds in June
By Chris Plantier
July 18, 2014
As we discussed in March and April, European banks have generally become less willing to borrow from U.S. money market funds due to regulatory pressures, especially at the end of the quarter. Specifically, the new Basel III requirements seek to increase capital ratios of banks and explicitly limit how much banks fund their operations through short-term borrowing (which includes short-term securities banks issue that money market funds invest in). This quarter-end effect was particularly strong at the end of June as European bank regulators continued to monitor bank progress toward meeting the new Basel III requirements, which will be fully phased in over the next few years.
TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
Now Off the Hill, Senator Snowe Still Brimming with Ideas, Advice
By Rob Elson
June 5, 2014
U.S. policy is ripe for reform in a number of key areas, but changes to ease the polarized political environment must come first, former U.S. senator Olympia Snowe (R-ME) told the crowd during the final session of ICI’s 56th annual General Membership Meeting (GMM), held May 20–22 in Washington, DC.
TOPICS: CybersecurityEventsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationGMMGovernment AffairsMutual FundRetirement PolicyShareholderTreasury
Industry Leaders Reflect on Serving Investors in an Evolving World
By Christina Kilroy
June 4, 2014
Speaking on the Leadership Panel held Wednesday, May 21, at ICI’s General Membership Meeting (GMM), fund industry leaders agreed that challenges as well as opportunities abound for their businesses in today’s complex world.
TOPICS: 401(k)EventsFederal ReserveFinancial MarketsFinancial StabilityFund GovernanceFund RegulationGMMGovernment AffairsInvestment EducationMutual FundRetirement PolicyShareholder
Former ICI President Matt Fink Decries FSOC’s “Revisionist History”
By Mike McNamee
May 30, 2014
Arguments that large stock and bond mutual funds are prone to “runs” that can destabilize markets go back many decades, and are as misguided now as they were then, argues Matt Fink, ICI president from 1991 to 2004, and author of The Rise of Mutual Funds: An Insider's View.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundTreasury
Errors of the Times: Getting the FSOC Debate All Wrong
By Mike McNamee
May 23, 2014
New York Times columnist Floyd Norris makes a number of fundamental errors in his Friday column about the House Financial Services Committee hearing and the broader debate about the Financial Stability Oversight Council (FSOC) and its review of asset management.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
SEC Chair White Stresses Need for FSOC to Consult Sources for Necessary Expertise
By Rachel McTague
May 22, 2014
Securities and Exchange Commission (SEC) Chair Mary Jo White today called for the U.S. Financial Stability Oversight Council (FSOC) to use outside expertise to the degree necessary in its process of designating systemically important financial institutions (SIFIs). She asserted that it is “enormously important for FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.”
TOPICS: EventsFederal ReserveFinancial MarketsFinancial StabilityFund GovernanceFund RegulationGMMGovernment AffairsMoney Market FundsMutual FundOperations and TechnologyShareholderTradingTreasury
The Market Crash That Never Came
By Mike McNamee
May 12, 2014
U.S. and international banking regulators, in their search for ways that mutual funds and their managers could threaten financial stability, have come up with a simple story: fund investors and asset managers “crowd or ‘herd’ into popular asset classes or securities” and thus “magnify market volatility.”
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
Size by Itself Doesn’t Matter—Leverage Does
By Mike McNamee
May 9, 2014
Second in a series of Viewpoints postings on funds and financial stability.
The threshold set by the Financial Stability Board (FSB) for examining whether a regulated fund could pose risk to the financial system should be redrawn—or better yet, withdrawn.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
SIFI Designation for Funds: Unnecessary and Harmful
By Mike McNamee
May 8, 2014
U.S. and international regulators are examining whether asset managers or the investment funds that they offer could be sources of risk to the overall financial system and should thus be designated as systemically important financial institutions (SIFIs).
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
ICYMI: "The Feds Target Money Managers"
By Mike McNamee
May 7, 2014
Yesterday’s editorial in the Wall Street Journal, “The Feds Target Money Managers,” neatly summed up the case against treating asset managers as systemically important financial institutions (SIFIs) and subjecting them to bank-style regulation.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
ICYMI: Congress Asks Questions About SIFI Designation and Asset Managers; SEC Chair White Provides Telling Answers
By Mike McNamee
April 30, 2014
DC scene setter, 2013–2014: The Financial Stability Oversight Council (FSOC) is examining asset managers for possible “systemically important financial institution” (SIFI) designation, which would bring with it enhanced prudential regulation from the Federal Reserve. Such “bank-style” regulation is foreign to U.S. capital markets.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
ICI Statement: FSOC Seeking “Pretexts” to Designate Funds
By Mike McNamee
April 24, 2014
ICI President and CEO Paul Schott Stevens today made the following statement in response to media reports that the Financial Stability Oversight Council (FSOC) has stepped up its review of major asset managers—which could lead to their designation as “systemically important financial institutions,” or SIFIs—based on boilerplate metrics.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
Seasonality, U.S. Money Market Funds, and the Borrower of Last Resort
By Chris Plantier
April 16, 2014
The March money market fund holdings data indicate a large drop in the share of fund assets allocated to European counterparties and a large increase in the share of fund assets allocated to U.S. counterparties. This shift is likely temporary and reflects reduced willingness of European banks to borrow from money market funds at the end of the quarter, rather than reduced demand from money market funds. Also, the increase in lending to U.S. counterparties is almost entirely due to the large increase in money market fund lending to the Federal Reserve via its overnight reverse-repo (repurchase agreement) facility.
TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
ICI Responds to the FSB Consultation on Systemic Risk and Investment Funds
April 8, 2014
In early January, the Financial Stability Board (FSB)—an international group of financial authorities—published a consultation paper on the issue of systemic risk and investment funds.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
ICI Response to Bank of England Haldane Speech on Asset Management and Potential Risk
By Mike McNamee
April 4, 2014
Today, ICI President and CEO Paul Schott Stevens made the following comment in response to a speech by Andy Haldane, currently executive director of the Bank of England and slated to become its chief economist in June.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
U.S. Prime Money Market Funds and European Borrowing
By Chris Plantier
March 18, 2014
European holdings by U.S. prime money market funds have fluctuated significantly since early 2011.
TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
Why Asset Management Is Not a Source of Systemic Risk
By Paul Schott Stevens
March 17, 2014
This Viewpoints post is a summary of a speech given by ICI President and CEO Paul Schott Stevens at the Mutual Funds and Investment Management Conference. The entire speech is now available.
Since September, U.S. and international regulators have released reports suggesting that asset managers or the funds that they offer may be sources of risk to the overall financial system. ICI does not agree that the asset management sector poses systemic risk. Nonetheless, these reports could be the predicate for new, bank-style prudential regulation of the asset management industry—which could significantly harm funds and the investors who use them.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
Money Market Funds and Liquidity Ratios: Why So High and Stable?
By Chris Plantier
February 19, 2014
Second in a series of posts about ICI’s new data release, a monthly compilation and summary of portfolio data from taxable money market funds. To find out more, read the first post about the new data summary or this list of answers to frequently asked questions.
The SEC’s 2010 money market fund reforms require taxable funds to hold at least 30 percent of their assets in securities that are deemed to be liquid within five business days (known as weekly liquidity) and at least 10 percent of their assets in securities that are deemed to be liquid in one business day (known as daily liquidity). In practice, money market funds—especially government money market funds—hold liquidity well above these minimum standards, and these ratios change very little in any given month.
TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
ICI’s New Data Release: Further Enhancing the Transparency of Money Market Funds
By Chris Plantier
January 21, 2014
The 2010 reforms to money market mutual funds greatly enhanced the transparency of these funds, giving regulators, analysts, and investors greater insight into important elements of funds’ holdings and operations.
The reforms required funds to disclose their entire portfolio holdings to the public on their company websites five business days after the end of each month. Money market funds also are required to file a more detailed disclosure—SEC Form N-MFP—with the Securities and Exchange Commission directly. The SEC releases this more detailed data to the public 60 days after it’s filed. The SEC does not, however, summarize the data, leaving the public with no non-commercial access to a broad look at holdings across the industry.
TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
Column Makes the Same Mistakes as OFR
By Paul Schott Stevens
January 20, 2014
In recent months, both the U.S. Treasury Department's Office of Financial Research (OFR) and international regulators such as the Financial Stability Board (FSB) have examined whether asset managers pose risks to financial stability. One report is deeply flawed; the other offers a more informed view. Unfortunately, Gretchen Morgenson’s New York Times column (“Bailout Risk, Far Beyond the Banks,” January 12) veers toward the flawed report.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalTreasury
Money Market Funds and the Debt Ceiling: What Do We Know?
By Brian Reid
October 14, 2013
As the U.S. Treasury reaches the limits of its borrowing authority this week, markets and the media are focusing on the risk that the United States will default on its debt and fail to pay interest or principal on maturing Treasury securities, perhaps before the end of October.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsGovernment AffairsMoney Market FundsTreasury
Copyright © 2019 by the Investment Company Institute