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ARTICLE · 27 JUNE 2014

Banking Regulators: Exit Fees For Bond Mutual Funds?

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Should federal regulators impose exit fees on bond funds? Officials at the Board of Governors of the Federal Reserve may think so.

United StatesFinance and Banking
Jay Baris
Jay Baris
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Should federal regulators impose exit fees on bond funds?  Officials at the Board of Governors of the Federal Reserve may think so.

The Financial Times reported on June 16, 2014 that Fed officials have discussed whether regulators should impose exit fees on bond funds to avert a potential run by investors.  The regulators apparently are concerned that bond funds are becoming "shadow banks" because investors can redeem their shares on any day, even though funds may face difficulties in selling off assets to meet redemptions in a liquidity crunch.

The FT reported that Jeremy Stein, who recently stepped down as a Fed governor, implied that bond mutual funds resemble banks and "may be the essence of shadow banking. . . ."  The discussions at the Fed were at a senior level and have not yet developed into a formal policy.

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