Reforms under consideration could undermine the convenience and stability of money market funds—and turn investors away from these funds. The resulting effects could disrupt the finances and operations of local communities, state governments, and even the federal Treasury.
Increase Cost to Local Governments
Money market funds hold more than half of the short-term debt that finances state and municipal governments for public projects such as roads, bridges, airports, water and sewage treatment facilities, hospitals, and low-income housing. Without that financing, local governments may be forced to limit projects, spend more on financing, or increase taxes.
Stymie Key Programs within the Federal Government
Even the federal government could face such issues. Consider the impact on federally funded projects and programs when you realize that money market funds hold one dollar out of every eight in short-term paper issued by the United States Treasury.
Undermine Local Economies
Money market funds hold more than one-third of the commercial paper that businesses use to finance payrolls and inventories. The flight of investors in the face of floating NAV or other changes that undermine the character of money market funds could significantly disrupt the supply of short-term credit that employers need to operate.
Reduce Yields or Increase Risks for Public Agencies
Should money market funds be forced to adopt a floating NAV, many state agencies, cities, counties, public authorities, public universities and other public entities would be forced to shift to bank products that have historically paid lower yields or to other cash products that are less secure.