Graham Bishop's Blog: Shadow banking: Commission proposal on Money Market Funds surprisingly fails to underline the 'Banking Union' linkages

04 September 2013

The intensity of the summer debate on Banking Union seems to have melted in the sunshine!

The whole purpose of the Banking Resolution and Recovery Directive proposal is to bail–in professional investors, and money market funds fit that description exactly. Even if the fund is split between 20 or more banks under these rules, a major bail-in of the longer-term deposits of a particular bank will surely lead to a significant loss for the holders of the fund. Why would fund-holders with a 'constant net asset value' guarantee wait around for the complexities of the final bail-in decisions to work through to them? The moment the whispers grow about a possible problem for a systemic bank, then it is reasonable to foresee that such fund-holders would cash in their guarantees and run for the hills. Contagion will be very alive and well…

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Graham Bishop - Consultant on EU Integration - Financial, Budgetary, Economic, Political

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