Will Housing Finance Reform Impact Cash Portfolios?

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Regulatory reform has been a constant presence in the world of cash investments over the past five years, and it’s had a significant impact on credit risk, supply and return. As the dust from the credit crisis began to settle, most short-term investments including bank deposits, money funds and commercial paper were, by necessity, wrapped in government guarantees in order to reassure and entice nervous investors. As the guarantees began to expire, money funds and deposits once again became stand-alone credits, but these entities found themselves substantially altered by reforms (and more are on the way). Money also began to flow to non-bank alternatives once the FDIC’s guarantee on deposits over $250,000 expired, and some of the largest recipients were GSEs, one of the few investments which still feature comprehensive government backing.

On March 16, 2014, Senate Banking Committee Chairman Tim Johnson (D-South Dakota) and Ranking Member Mike Crapo (R-Idaho) unveiled a bill to reform housing finance, and once again, a major cash asset class faces regulatory change. As investors adjust, new money flow patterns will emerge and the risk/reward trade-off for different asset classes will shift. Understanding the impact of this reform in advance, and preemptively positioning for the repercussion and opportunities will be an important part of cash strategies over the next several years. Accordingly, in this month’s research, we take a closer look at the potential impact of looming GSE reform.

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Best Regards,

Ben Campbell
President & CEO

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