IMA's Saunders: Money market funds are not 'shadow banks'

FUNDS ARE NOT SHADOW BANKS

There is much talk in regulatory circles of "shadow banking". It began after the credit crisis exploded, and has become a special interest of the Financial Stability Board, the global body set up to deal with future crises before they hit.

Policymakers fear that "shadow banks" will run similar systemic risks to those of badly-run real banks, but out of sight of banking regulators. The trouble is that it is as clear as mud what is, and is not, a "shadow bank". You don't have to borrow from banks. Companies and governments have been borrowing for years by issuing bonds. That doesn't turn the pension funds and insurance companies that buy them into banks, even if they are technically lending to the issuer. Nor does it mean that the investment managers who act on their behalf, or their funds, become "shadow banks". What wor...