Money Market Funds: Measures To Improve Stability And Liquidity [EU Legislation In Progress]

‘EU Legislation in Progress’ briefings aim to provide Members of the European Parliament with systematic and automatic analysis on all substantial proposals for EU legislation at every stage of the legislative procedure. Each contains an account of the purpose, content and legal aspects of the legislation proposed, in particular analysing what the legislation would change, as well as any previous legislation and the background. An overview of stakeholders’ views is also provided, as well as the opinions of national parliaments and the two advisory committees.

They are all made publicly available for stakeholders and the public.Money Market Funds (MMFs) are a type of collective fund that invest in short-term debt and provide financing for financial institutions, corporations and governments. During the financial crisis their liquidity and stability were challenged which prompted discussion on how to make them more shock-resistant.

In 2013 the European Commission proposed a regulation on MMFs aiming to improve their ability to weather stressed market conditions, mainly through establishing a capital buffer, introducing conditions on portfolio structure, addressing over-reliance on external credit rating agencies and improving their internal risk management, transparency and reporting. In April 2015 the European Parliament adopted amendments in which it proposed the creation of new kinds of MMFs and chose not to retain the capital buffer. The Council has yet to reach a general approach.

The reaction of stakeholders was mixed: many welcomed the intention to establish a harmonised and transparent MMF framework at EU level but there have also been considerable concerns raised regarding the impacts, including of the capital buffer.

Written by Marcin Szczepański (1st edition).

EP: EPRS: Briefing: EU Legislation in Progress http://epthinktank.eu/eu-legislation-in-progress/

ESO: Background information: Proposal for a Regulation of the European Parliament and of the Council on money market funds http://www.europeansources.info/record/proposal-for-a-regulation-of-the-european-parliament-and-of-the-council-on-money-market-funds/

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