Scaling Back
Customers were denied access to most of their cash for months as the fund liquidated. Investors, fearing that other funds might fail, withdrew $230 billion from the industry by Sept. 19 in a run that threatened to cripple issuers of short- term debt.
Money market funds are limited to securities that can be converted into cash within 13 months.
JPMorgan's Roever and Peter Rizzo, senior director of fund services at credit rater Standard & Poor's in New York, said U.S. managers have been reducing their European bank holdings and shortening the average maturities of those remaining. That would allow them to withdraw more quickly without having to sell securities into a potentially illiquid market.
S&P estimated that 80 percent of European bank holdings is limited to three months or less, and 95 percent to six months or less among the 500 U.S. and European money funds it rates.
Multiple Defaults
"The risk is if something takes the crisis from Greece to Portugal, Ireland and beyond and it spreads like wildfire," Deborah Cunningham, head of taxable money-market funds at Pittsburgh's Federated Investors Inc., said in a telephone interview. Federated is the third-biggest money-fund provider after Fidelity Investments and JPMorgan.
Multiple sovereign defaults could be managed if the banks don't have to write down the bonds' full value, said Anthony Carfang, a partner at Chicago-based Treasury Strategies Inc., which advises corporate treasurers.
"A whole lot of very bad things would have to happen very quickly for this to even approach a problem for money funds," Carfang said in an interview.
Rules adopted by the U.S. Securities and Exchange Commission after the Reserve Primary debacle would also protect funds if investors spooked by the European crisis suddenly began withdrawing money, Carfang said. Funds now must keep 30 percent of holdings in securities that can be converted to cash within seven days.