Money market funds could be an attractive alternative to inter-bank deposits under Basle II, according to a report commissioned by specialist MMF provider, AIM Global.
Because they are corporate entities, MMFs are currently 100% risk weighted in Europe. Under Basle II’s internal rating based (IRB) approach, MMFs will be collective investment undertakings. AAA money market fund risk weightings will drop to 20%. Capital requirements could be as low as 15% for banks under the foundation IRB approach, or even to 2% for banks using advanced IRB.
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