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banks to hedge funds: stay away!

David_Snowball
in The Bullpen
Interesting article in today's Wall Street Journal, one of several actually, on banks' increasing aversion to holding other people's cash. As part of that whole liquidity debate that we've been writing about all year, banks are now required to hold liquid reserves for up to 100% of the value of certain deposits by hedge funds. The most recent 1- and 3-month Treasury auctions sold at a zero yield, which mean the banks have no prospect of earning anything on some potentially "hot money" deposits. According to the Journal, J P Morgan has chased off $150 billion in unwanted deposits this year and some banks are now charging fees to hold some large deposits; at base, those depositors are accepted a negative interest rate.

This has apparently also spurred some discussion about using not-quite-cash funds, such as ultra-short bond funds, as cash funds.

In what's presumably a related move, Fidelity has begun closing funds to those who are not "natural persons." The prospectus for Fidelity's Arizona, Connecticut and Michigan Muni funds, the general Municipal Money Market Fund and the Massachusetts and New York AMT Tax-Free Money Market funds is being revised to read:
The fund has been designated a retail money market fund, which means that it limits investments to accounts beneficially owned by natural persons. The fund expects to implement the new eligibility requirements on January 1, 2016.

The fund is not yet subject to liquidity fees, nor the temporary suspension of redemptions. The fund expects to implement these features by October 2016.
Fidelity Government Money Market Fund Premium, Retirement Government Money Market will now offer the following curious reassurance:
The fund will not impose a fee upon the sale of your shares, nor temporarily suspend your ability to sell shares if the fund's weekly liquid assets fall below 30% of its total assets because of market conditions or other factors.
Fidelity Cash Reserves, Select Money Market and Fidelity U.S. Government Reserves closed to new investors at the end of August, with the U.S. Government Reserves poised to merge into Fidelity Government Money Market Fund

Beginning in October, the institutional money markets will institute a floating NAV.

Hmmm ... money market funds are beginning to become interesting. I wonder if I should worry?

David
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