A staff report from the Federal Reserve Bank of New York "strongly" endorsed by NY Fed president William Dudley supports limiting some types of money-market fund withdrawals, Michael Derby and Andrew Ackerman report for the Wall Street Journal.

"Further reform of money funds is essential for our nation's financial stability," Dudley told the WSJ.

The report proposes that money-market funds impose a "minimum balance at risk," a small fraction of each shareholder's recent balances that would be set aside if shareholders withdrew from the fund. This minimum balance would be locked up for 30 days, ensuring that redeeming investors "remain partially invested in the fund long enough to share in any imminent portfolio losses or costs arising from their redemptions," the report explained.

Overall, the ideas explored in the report force investors to be more mindful of investing in the $2.7 trillion money-market fund industry. Though many perceive the funds to be a safe and liquid preservation vehicle, others worry that money-market funds could be a "prime conduit" for passing Europe's financial crisis on to the U.S., the WSJ reports.

Meanwhile, SEC officials have described the NY Fed paper as a "blueprint" for chairman Mary Schapiro's proposed changes to money-fund regulations. 

Edited by: Irene Park


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