In a report published on Monday 11 May, the European Commission’s financial services department (DG FISMA) notes that EU money market funds are generally resisting market tensions well. However, they state that it is necessary to clarify certain rules applicable to their liquidity reserves, in order to better prepare the sector for possible waves of massive withdrawals that could weaken the financial system.
To this end, on Monday the European Commission published a series of questions and answers clarifying prudential expectations regarding minimum liquidity levels and the use of liquidity buffers, particularly in the face of an increase in reimbursement claims.
“This will help money market fund managers and competent authorities to identify situations that may require closer scrutiny, reducing the risk of contagion to the EU financial system and wider economy”, said the Commission.
Despite the publication of this new guidance, the Commission has confirmed that money market funds generally take a cautious approach, maintaining liquidity reserves in excess of the requirements under the MMF Regulation in force since 2018 (see EUROPE 11669/3) and for which a public consultation was carried out in 2022 (see EUROPE 12931/13).
To see the report: https://aeur.eu/f/lur; and the supplementary guidance document: https://aeur.eu/f/lus (Original version in French by Bernard Denuit)