Mutual funds and exchange-traded funds should be required by regulators to set aside more money to make sure they can meet investor redemptions during times of turmoil, Dallas Federal Reserve President Rob Kaplan said Tuesday.
Sparked by concern over falling oil prices, the meltdown late last year in junk bonds, a significant percentage of which were energy-related, created a fund liquidity crunch that needs to be avoided in the future, Kaplan told CNBC's "Squawk Box" in a wide ranging interview.
Kaplan explained the problem.
"High-yield bonds today are held in mutual funds and ETF form, primarily," he said. "Those funds offer daily liquidity. So what happens when energy is weak, [funds] may not be able to sell ... energy bonds but [they're] going to sell every other bond in order to meet redemptions."