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Why Bankers Group Hates Money Market Insurance Plan

The American Bankers Assocation has objected to the plan to guarantee money market funds on the grounds that it will REDUCE deposits in the nation's banks.

Huh? I just got off the phone with them, here's their reasoning:

1) investment bank money market funds pay higher yields because they are not insured, but now they ARE getting insured;

2) banks have been paying premiums into the FDIC for years -- THEIR money market funds ARE insured and always have been, but their yields are a little lower;

3) investors in bank money market funds may start switching to investment bank money market funds because: a) the yields are higher, and b) there appears to be no limit to the amount of insurance you get.

The ABA thinks this is a threat to their deposit base.

Just one more little effect. Is it worth abandoning the insurance program for this? No, but some oxes are getting gored a little here.

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CNBC's Names in the News:

- Morgan Stanley

- General Electric

- Wachovia Bank

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Questions? Comments? tradertalk@cnbc.com

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