EU member stats backing Money Market Funds reform

The member states of the European Union (EU) reached an agreement on the reform of the Money Market Funds (MMFs) on Wednesday, marking a further step in the completion of the post-crisis reform agenda.

MMFs are a key part of the international work on shadow banking and sustainable, market-based finance. These funds serve as an important source of short-term financing for financial institutions, businesses and governments.

However, they have also been vulnerable to investor "runs" on redemptions and have given rise to misperceptions that their returns are guaranteed.

Therefore, the EU's executive body, the European Commission adopted its proposal for a regulatory framework of MMFs in September 2013 in order to address their potential impact on the financial system.

The agreement marks a major step in our efforts to ensure that MMFs can better withstand redemption pressures in stressed market conditions, while at the same time ensuring that they continue to provide a secure tool for European companies to manage their finances, the European Commission said in a statement.

Meanwhile, the green light from the EU member states for the reform paves the way for trialogues with the European Parliament.

Jonathan Hill, EU Commissioner responsible for Financial Stability, Financial Services and Capital Markets Union, called the agreement "a step in the right direction."

"Strengthening the regulation and oversight of MMFs will ensure that the potential systemic risks are addressed, in line with the recommendations issued by the Financial Stability Board. It will also ensure MMFs can continue to provide their key role in supporting financing in the wider economy," he said.

In Europe, around 22 percent of short-term debt securities issued by governments or by the corporate sector are held by MMFs. Meanwhile, they hold 38 percent of short-term debt issued by the banking sector. Endit