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.
CNBC's Names in the News:
- Morgan Stanley
- General Electric
- Wachovia Bank
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