MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication
an InvestmentWires' Publication
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MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication |
|
Tuesday, January 6, 2004 Regulators Cast Wary Eye at Bank Fund Risks Banks need to be careful in incurring liabilities in efforts to bail out money market mutual funds say regulators. In a joint statement issued Monday, officials from the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision issued new guidance for banks advising money market mutual funds. The new regulations require that banks, thrifts and bank affiliated investment advisors seek approval before taking steps to provide financial assistance to funds. The low interest rate environment and resulting slim margins on the funds have raised concerns with the regulators. They fear that institutions may take on unexpected or unforeseen risks by making implicit promises to fund shareholders in an effort to ensure money market funds do not break the buck. Yields on many funds are well below one percent. That leaves them vulnerable to defaults and further cuts in rates. "Investment advisory services can pose material risks to a financial institution's liquidity, earnings, capital and reputation and can harm investors, if the associated risks are not effectively controlled," the regulators said. The regulators added that "Emergency liquidity needs may prompt banks to support their advised funds in ways that raise prudential and legal concerns." The guidance was meant for financial institutions that provide investment advice to funds for a fee. Those institutions should set limits on the amount of credit they provide to funds and keep an eye on the associated risks with provide credit or cash infusions to the funds or when they purchase securities from the funds. Printed from: MFWire.com/story.asp?s=6435 Copyright 2004, InvestmentWires, Inc. All Rights Reserved |