MEPs ditch capital buffer rules for money market funds

Europe’s money market funds will not have to hold costly capital to shield them from financial shocks following a vote by MEPs to soften proposed new rules for the trillion-euro industry.

The new regulations are designed to ensure stability in money market funds, which are used by companies and investors to park cash for short periods. The funds experienced mass withdrawals when US bank Lehman Brothers collapsed in 2008.

The original proposals would have required more than half the funds in the sector to hold a buffer or capital equivalent to 3% of their assets as a safeguard in market turbulence.

The industry complained that such a buffer would make these funds uneconomic, which would give corporate treasurers fewer options in terms of where to park cash.

Now the European Parliament’s economic affairs committee has voted to ditch the capital buffer requirement.

It has adopted a new approach similar to US rules, where the funds would have fees and “gates” aimed at making it harder for investors to withdraw their cash in a crisis. The new plans also create three new categories of funds, one for holding only EU government debt and another for just retail investors.

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