Fed looks at exit fees on bond funds
Tom Braithwaite, Tracy Alloway and Michael Mackenzie in New York and Gina Chon in Washington
Monday, 16 Jun 2014 | 9:03 PM ET
Federal Reserve officials have discussed whether regulators should impose exit fees on bond funds to avert a potential run by investors, underlining concern about the vulnerability of the $10 trillion corporate bond market.
Officials are concerned that bond funds are becoming "shadow banks", because investors can withdraw their money on demand, even though the assets held by the funds can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter.
Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.
Introducing exit fees would require a rule change by the Securities and Exchange Commission, which some commissioners would be expected to resist, according to others familiar with the matter.