(Bloomberg) --
Bank of England Deputy Governor Jon Cunliffe said money market funds need some sort of self-insurance program to ease their impact on the financial system in times of strain.
The comments, in “The Swap” podcast from the International Swaps and Derivatives Association, step up the BOE's call for regulation of money market funds after their role in the “dash for cash” crisis when Covid-19 hit the U.K.
“At the root of the problem is these funds invest in what are normally very liquid instruments,” Cunliffe said. “But these are not cash like. They are near cash like. We have something that is treated as cash by depositors that is not cash.”
Cunliffe said the funds were relying on central banks to provide a backstop in times of market strain. That happened in March 2020, when markets quickly shifted to take account of spreading coronavirus infections and lockdowns across Europe.
“If it wants access to public sector liquidity, it has to self insure,” Cunliffe said. “It will not necessarily have to self insure the way the banks do.”
“This is the second time we've had a stressed event in money markets,” he said. “We were supposed to have fixed it in the financial crisis. We've had two, and we really do need to address it.”
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