Institutional investors to boost MMFs on Basel III, EU reforms

State Street published new research showing that almost three quarters (74%) of institutional investors plan to increase their use of money market funds (MMFs) in addition to bank deposits, as a direct result of regulation, such as Basel III, driving many banks to remove non-operating deposits from their balance sheets.

The key driver of this activity is the belief of 43% of institutional investors that term bank deposit rates will fall further this year, making alternative options for holding cash – such as MMFs that have the potential to offer greater yields – increasingly attractive.  Between now and 2021, 43% of the institutional investors surveyed also expect the focus on cash segmentation from investors to increase, with just four percent believing it will decline.

Outside of Basel III, new rules such as the European Union MMF Reform which is coming into effect on 21 July 2018 for new funds, and 21 January 2019 for the conversion of existing funds (and applicable to €1 trillion of assets), outlines revised liquidity and credit quality standards. According to the research, 45% of respondents expect investors to conduct a comprehensive review of how they use MMFs, as a direct result of this reform; and more than half (54%) believe the new rules will contribute towards more European asset owners changing their investment policies to permit investing in MMFs with floating net asset values (NAVs).

Read the research report

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