The prolonged low interest rate environment has pressured returns on money market mutual funds (MMMFs), and MMMF portfolios are earning the lowest returns on investments since the funds were established more than 30 years ago (see chart below).
? Inappropriately place its resources and reputation at risk for the benefit of the fund's investors and creditors. ? Violate the limits and requirements contained in Sections 23A and 23B of the Federal Reserve Act and Regulation W, other applicable legal requirements or any special supervisory condition imposed by the agencies. ? Create an expectation that the bank will prop up the advised funds.
In addition to sponsoring MMMFs, some banking organizations hold MMMFs as an investment, traditionally as a way to earn a better return on funds invested for the short term. Like other MMMF investors, banking organizations that hold these investments are experiencing diminished returns on them. Credit risk can also become a factor for banking organizations should they hold MMMFs as an investment. In fact, the only MMMF that broke the buck, the U.S. Government Money Market Fund, was marketed to community banks, which lost $2.5 million in the aggregate, before recovering some of the losses in a legal suit. This example indicates that while it is extremely rare, investors can lose money with MMMFs, and if banks choose to invest in MMMFs, management should perform proper due diligence and monitor the funds' performance on an ongoing basis.