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U.S. Prime Money Market Funds’ Eurozone Holdings Remain Low and Limited in Scope

By Emily Gallagher and Chris Plantier

March 28, 2013

Given February’s elections in Italy and recent developments in Cyprus, questions have resurfaced about the eurozone debt crisis and how it might affect the U.S. economy. For example, in testimony before the Senate Banking Committee in February, Senator Charles Schumer (D-NY) asked Federal Reserve Chairman Ben Bernanke what exposure American financial institutions had to Italy’s debt. Bernanke suggested that indirect effects, rather than direct holdings of Italian debt, were more likely to impact the U.S. economy. In passing, however, he may have left the impression that U.S. money market funds hold Italian bank debt.

To address these questions, we examined the N-MFP holdings data that money market funds report monthly to the Securities and Exchange Commission. U.S. money market funds do not hold any Italian bank securities, nor do they hold Italian sovereign debt. In fact, the vast majority of their eurozone holdings are to entities whose ultimate parent is in France, Germany, or the Netherlands. Prime money market funds moved away from Italian private sector debt during the spring and summer of 2011, and have not returned since.

U.S. Prime Money Market Funds’ Holdings of Italian Issuers
Millions of dollars; month-end; May 31, 2011–February 28, 2013

Note: Data exclude prime money market funds not registered under the Securities Act of 1933.
Source: Investment Company Institute tabulations of data provided by Crane Data

At present, money market funds do have a very small exposure—just over $100 million—to an Illinois-based financing arm of CNH Global N.V. CNH is a manufacturer of agricultural and construction equipment; it makes tractors, backhoes, and other industrial equipment in the United States. Fund holdings in CNH are predominantly asset-backed loans to U.S. businesses. We classify these holdings as Italian because CNH is a subsidiary of Turin, Italy-based Fiat Industrial (which, incidentally, has plans to relocate its headquarters to the Netherlands). It is debatable whether this represents exposure to the Italian economy or to the U.S. economy, but it certainly is not exposure to Italian banks or Italian government debt.

As shown in the chart below, over the last six months, prime money market funds have increased their holdings of eurozone issuers: from 14.0 percent of assets in August to 19.8 percent of assets in February 2013. This increase can be explained by a rise in holdings of French assets (rising from 5.1 percent last August to 9.6 percent) and in holdings of German assets (up from 5.1 percent in August to 6.4 percent). More than 96 percent of these eurozone holdings are in France, Germany, and the Netherlands.

U.S. Prime Money Market Funds’ Holdings of Eurozone Issuers
Percentage of prime funds’ total assets; month-end; December 31, 2011–February 28, 2013

Note: Data exclude prime money market funds not registered under the Securities Act of 1933.
Source: Investment Company Institute tabulations of data provided by Crane Data

Prime Money Market Funds’ Holdings by Home Country of Issuer
February 28, 2013
Country Billions of dollars Percentage of total assets
World total $1,486.3 100%
Europe 566.0 38.1
Eurozone 294.0 19.8
France 142.5 9.6
Germany 95.0 6.4
Netherlands 45.8 3.1
Austria 7.3 0.5
Belgium 2.3 0.2
Spain 0.8 0.1
Luxembourg 0.2 0.0
Italy 0.1 0.0
Non-eurozone 272.0 18.3
Sweden 93.3 6.3
UK 92.0 6.2
Switzerland 64.7 4.4
Norway 22.0 1.5
Americas 640.1 43.1
USA 457.3 30.8
Canada 181.3 12.2
Chile 1.4 0.1
Venezuela 0.1 0.0
Asia and Pacific 273.8 18.4
Japan 154.2 10.4
AUS/NZ 107.3 7.2
Singapore 8.6 0.6
China 3.2 0.2
Korea 0.3 0.0
India 0.2 0.0
Malaysia 0.0 0.0
Supranational 3.7 0.2
Unclassified 2.7 0.2

Note: Calculations are based on a sample of 120 funds, representing an estimated 93.3 percent of prime funds’ assets.
Source: Investment Company Institute tabulations of data provided by Crane Data

For more on money market funds, please visit ICI’s Money Market Funds Resource Center.

Emily Gallagher is an ICI assistant economist and Chris Plantier is an ICI senior economist.

TOPICS: Financial MarketsMoney Market Funds

Individual Investors Will Be Harmed by Financial Transaction Taxes

By Keith Lawson

March 27, 2013

A fundamental tenet of the argument for a financial transaction taxes (FTTs) is that individuals would not be harmed.

Read more…

TOPICS: ICI GlobalTaxes

Narrowing the Focus to Prime Money Market Funds

By Brian Reid

March 25, 2013

One of ICI’s key points in our responses to recent policy proposals for money market funds is that no case can be made for applying fundamental changes to Treasury, government, and tax-exempt money market funds.

Read more…

TOPICS: Financial MarketsMoney Market Funds

Eliminating Confusion in MSRB Rulemaking

By Tamara Salmon

March 8, 2013

The Municipal Securities Rulemaking Board (MSRB) has asked for input on how it can improve its approach to rulemaking. We’ve responded with several recommendations for the agency, including steps that would eliminate confusion relating to the regulation of 529 college savings plans.

Read more…

TOPICS: Fund Regulation

The New York Fed’s Flawed Approach to Fixing the Money Market

By Brian Reid

March 4, 2013

William C. Dudley, president and CEO of the Federal Reserve Bank of New York, recently delivered a speech, “Fixing Wholesale Funding to Build a More Stable Financial System.” I was interested to read his remarks, as the New York Fed has been instrumental in pursuing reforms to strengthen the financial markets, particularly in the market for tri-party repurchase agreements.

Read more…

TOPICS: Financial MarketsMoney Market Funds

One Size Does Not Fit All in Regulation of Financial Benchmarks

By Robert C. Grohowski, Mara Shreck, and Giles Swan

March 1, 2013

Following controversy surrounding calculation of the London Interbank Offered Rate (LIBOR), international regulators are closely scrutinizing the methodology, use, and oversight—among other issues—of financial benchmarks.

Read more…

TOPICS: Fund Regulation

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