Fidelity Investments, a Boston-based provider of US money market funds, told US Securities and Exchange Commission (SEC) officials that proposed industry reform could increase the borrowing costs of US municipalities by up to US$13 billion, according to Reuters.
In a meeting with the SEC’s Division of Economic and Risk Analysis on 16 August, Fidelity officials said U.S. municipal financing costs could increase anywhere from US$1 billion to US$13 billion, depending on the amount of money market-related funding that is refinanced with more expensive debt.
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Money market funds currently provide low-cost financing to U.S. states and cities by buying the short-term debt they issue to fund their operations.
The current annual financing cost of money market funds, which hold US$323 billion worth of municipal debt is US$275 million,Fidelity said in its presentation to the SEC. The financing costs assume average interest rates between 0.06% and 0.18% on short-term funding.
Under the SEC’s proposal, municipal money market funds would have to move away from a stable, US$1 per share price, to a floating net asset value (NAV).
According to the presentation, municipal money market funds account for about US$260 billion, or 10.5%, of the US$2.6 trillion money fund industry.
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