March turbulence shows need for financial reforms in US

WASHINGTON (AP) — A United States (US) top government financial oversight panel said that the turbulence in financial markets last spring has exposed problems in the operation of money market funds that will need to be corrected before the next crisis hits.

The President’s Working Group on Financial Markets, led by the Treasury Department, issued a report on Tuesday which said that the flight to safety triggered by the coronavirus pandemic last spring pointed to the need for reforms that will make money market funds less vulnerable to investors rushing to withdraw their funds.

“During March, money markets experienced significant outflows, forcing Treasury and the Federal Reserve to step in to prevent a destabilising run,” Deputy Treasury Secretary Justin Muzinich said in a statement accompanying the report.

“We must now consider reforms to ensure this vulnerability does not threaten financial stability,” he said.

The crisis last March prompted the Federal Reserve to purchase billions of dollars in Treasury securities and other bonds to stabilise financial markets and cope with a massive sell-off by investors that was larger than the sell-off that was triggered by the 2008 financial crisis.

While the 2008 bout of instability led to a number of reforms, the new report said that this year’s problems highlighted the need for further action.

The report did not make specific recommendations for changes but instead laid out a number of areas which could be considered such as imposing higher capital requirements for money market funds or tougher rules for investors to redeem their investments.

File photo of the US Treasury Department building at dusk in Washington. PHOTO: AP