The Floating NAV Isn’t Going to Hurt Municipal Financing
August 2, 2016
On August 14, 2014, the SEC published a final rule (“Rule”) adopting a collection of reforms applicable to money market funds (“MMFs”). Although the Rule contained an incremental and incomplete set of measures, it nevertheless was a positive step forward. One of the most important components of the Rule was a requirement that all institutional prime and institutional municipal money market funds float their net asset value or “NAV.”
The floating NAV has encountered strong opposition throughout the regulatory process, and has even inspired legislative proposals to roll it back. See S. 1802. Some of the most vocal critics include municipalities who claim that the Rule will drive institutional investors away from municipal money market funds, increasing the cost of financing for local governments.
The SEC addressed these concerns appropriately when it released the Rule, explaining that the impact of the floating NAV would be minimal because (1) institutional municipal MMFs supply only a small percentage of financing for municipalities; (2) those funds will continue to attract at least some institutional investors even with the floating NAV in place; and (3) any impact is a necessary cost of stabilizing our financial system and preventing future devastating financial crises. A look at more recent data confirms these points: The floating NAV is an important reform that is unlikely to have a significant impact on the cost of financing for municipalities.
Read the full blog post here.