The Bank of England intensifies its pressure on money market funds in order to increase liquidity.

The BoE's Financial Policy Committee stated in a statement that "significantly more liquid assets than currently required is likely to be the most effective way to increase MMF resilience and thereby reduce risks to financial stability."

In response to the money market sector's struggles with a "dash for cash" during the COVID-19 pandemic, the Bank of England stated on Tuesday that funds should keep "significantly" larger quantities of liquid assets to manage market volatility.

The 250 billion pound sterling money market funds sector, which is heavily utilised by businesses for day-to-day finance and overnight cash storage, needs to be more shock-resistant, according to the BoE's Financial Policy Committee.

According to staff research, assets that mature in 7 days or fewer should account for at least 50% to 60% of a fund's total assets, according to the FPC. This contrasts with the sector's present levels, which range from 45% to 55%.

MMFs are a component of the larger non-bank sector, which has expanded since the 2008 global financial crisis to account for roughly half of all financial assets worldwide. However, the non-bank sector is more complicated than the banking industry, making it more difficult for regulators to identify risks and the potential for contagion.

After being forced to interfere in the market in September of last year, the Bank pushed through stricter liquidity regulations for liability-driven investment funds (LDI), utilised by pension funds, early this year.

The FPC stated in a special report that it might improve and examine how it prioritises risk assessment in order to better explain how it goes about doing so in market-based finance.

Additionally, "the potential role for macroprudential tools" might be taken into account, including the possibility of the requirement for higher resilience criteria for non-banks, a broad category that includes investment funds, hedge funds, private equity, pension funds, and insurers.

(Sources: investing.com, reuters.com)