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NY FED eyes limiting money market fund withdrawals .....LIP
This got me thinking about regulations on cash. If you've read enough disclaimers, you've probably read something with your brokerage along the lines of: the transaction account "should be used for cash temporarily awaiting reinvestment; it is not intended solely for the purpose of earning interest." (That's Fidelity's description of the Fidelity Cash (FCASH) account.)
It seems that this comes from the SIPC coverage of cash you "lend" to a brokerage (i.e. cash accounts that are general obligations of the brokerage, as opposed to MMFs or bank accounts). This is what the SIPC covers for $250K only out of the usual $500K limit. If you keep money in a bank sweep account, the rules are different. Then (so long as the cash is in an interest bearing account), they fall under FDIC Regulation D.
As with all accounts that are not "transaction accounts" (FDIC terminology), "the Bank reserves the right to require [the brokerage] to provide the Bank with seven days notice before withdrawing cash from any Bank Sweep Option." (That's from Baird's disclosure. Fidelity's, and others' are similar.)
So there are rules and there are rules. The fact that institutions can require prior notice (to prevent runs on their reserves) and whether they will are two different things. People think they can get money out of their savings/MMAs any time they want but they're mistaken. It remains to be seen how a 30 day MMF rule would actually work.
Howdy msf, I recall from the late 70's, and reading the paper contract, related to either the checking or savings acct. at a local bank; the bank's legal right to impose a 30 day period, during which a limited amount or no monies were required to be paid out to the acct. holder, upon demand fr0m the holder. A related note to the previous discussion about long term care plans; is that Prudential further announced yesterday, that in addition to no more plans issued to individuals; they will also stop providing new group plans through/into companies for employees, as of August 1. Wandering away from this thread topic; but indicated by Pru's withdrawal from the long term care plans is the additional problematic area (in my opinion) of the abilities going forward of insurance companies, as well as pension plans being able to properly fund future obligations, in what may be a continued low interest rate environment for some time; and these organizations reliance upon bond holdings to help provide funding monies. Add to this, the reported 10,000/day baby boomers retiring and set to begin drawing down monies from various sources. Yikes ! Hey, I suppose I can "highjack" my own thread topic, eh? Thank you for your input. Take care, Catch
Thanks Catch. Article got me thinking about an issue I hadn't fully comprehended. While on paper the money market concept is solid ... no matter how well run, they are susceptible to investor panic in a way that bank accounts with FDIC backing aren't. Or as Pogo said, "we have met the enemy ....."
Comments
It seems that this comes from the SIPC coverage of cash you "lend" to a brokerage (i.e. cash accounts that are general obligations of the brokerage, as opposed to MMFs or bank accounts). This is what the SIPC covers for $250K only out of the usual $500K limit. If you keep money in a bank sweep account, the rules are different. Then (so long as the cash is in an interest bearing account), they fall under FDIC Regulation D.
As with all accounts that are not "transaction accounts" (FDIC terminology), "the Bank reserves the right to require [the brokerage] to provide the Bank with seven days notice before withdrawing cash from any Bank Sweep Option." (That's from Baird's disclosure. Fidelity's, and others' are similar.)
So there are rules and there are rules. The fact that institutions can require prior notice (to prevent runs on their reserves) and whether they will are two different things. People think they can get money out of their savings/MMAs any time they want but they're mistaken. It remains to be seen how a 30 day MMF rule would actually work.
I recall from the late 70's, and reading the paper contract, related to either the checking or savings acct. at a local bank; the bank's legal right to impose a 30 day period, during which a limited amount or no monies were required to be paid out to the acct. holder, upon demand fr0m the holder.
A related note to the previous discussion about long term care plans; is that Prudential further announced yesterday, that in addition to no more plans issued to individuals; they will also stop providing new group plans through/into companies for employees, as of August 1.
Wandering away from this thread topic; but indicated by Pru's withdrawal from the long term care plans is the additional problematic area (in my opinion) of the abilities going forward of insurance companies, as well as pension plans being able to properly fund future obligations, in what may be a continued low interest rate environment for some time; and these organizations reliance upon bond holdings to help provide funding monies. Add to this, the reported 10,000/day baby boomers retiring and set to begin drawing down monies from various sources. Yikes !
Hey, I suppose I can "highjack" my own thread topic, eh?
Thank you for your input.
Take care,
Catch