Hands off the money-market funds

It is ironic that at a time when the Reagan administration is championing deregulation a number of key congressional Republicans are joining the banking industry in seeking federal curbs on money-market mutual funds. The funds -- which invest in short-term financial instruments -- have recently been yielding between 15 and 18 percent interest. They are also a financial haven for small investors who have yanked their deposits out of banks and savings and loan institution (S&Ls), which pay out interest rates on passbook accounts that are well below the inflation rate.

The administration and Congress should resist the effort to restrict the money funds. Despite their spectacular growth during the past decade, total assets for money market funds are only around $105 billion, compared to total deposits for commercial banks of over $1 trillion and deposits of more than $500 billion for S&Ls. It is true that traditional savings institutions, particularly the S&Ls and mutual savings banks, have been experiencing tough financial days of late. But one way to help the savings industry is to make it more attractive for individuals to save by going to their local savings institution -- not by ruthlessly curbing the competition.

At the same time, lawmakers must take all otherwise appropriate legal and political steps to aid the troubled S&Ls.

Proponents of limitations have a strong ally in Sen. Jake Garn, Republican of Utah, who is the new chairman of the important Senate Banking Committee. Another GOP supporter of curbs is Iowa Congressman James Leach. Mr. Leach wants to help savings associations until, under a law passed last year, federal ceilings are finally removed in 1986 and the S&Ls can offer competitive market interest rates. Among steps being considered for curbing the money funds are requiring reserve requirements and taking away such consumer services as check-writing privileges. Meantime, curbs are also being considered in several states.

The money funds, for their part, have already proven to be highly resilient. The Carter administration required funds to set aside 15 percent of their assets in noninterest-earning reserves in March 1980 as part of the administration's short-lived credit-control program. Yet the funds continued to grow. That experience leads many observers to believe that any permanent restriction on the funds would either have little long-range effect in curbing their growth or alternatively, if it did, would only hasten the development of new forms of high-yield investment, just as the funds themselves shot out of obscurity.

It is the smaller investor, however, who often goes into a fund with as little as $1,000 or so, who would be penalized by curbs. As noted on this page yesterday, the US needs to be more resourceful in stimulating savings. Money-market mutual funds have been one of the few genuine financial shields during the past several years of soaring inflation. For that reason, the small inves tor also deserves the consideration of Congress.

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