The old-timers think the new kid on the block is getting too big for his britches. "No parental discipline," they say, "Running around without reserve requirements. Luring funds from small banks to the big city. Staying up late and making it hard to measure the money supply."
So the traditional depository institutions -- banks and savings-and-loans -- mutter among themselves, shaking their heads and churning out critical press releases about new fangled money-market funds. They think the funds are a major cause of their current financial problems, and they think the government should do something about it.
Three bills that would regulate the funds have been introduced in Congress. And this week a House subcommittee began hearing witnesses on the issue.
But observers predict nothing will come of the move. They say the depository institutions' case is circumstantial -- and that Congress knows it is risking the wrath of millions of savers who have found relief from inflation in the funds.
A covey of bankers trooped up to Capitol Hill and claimed that the last growth of money-market funds was bleeding them dry of cash, predicting dire consequences if the situation were allowed to continue.
"This circumvention of the longstanding system of insured, regularly examined institutions . . . holds out a serious potential for results adverse to the public interest," said Albert Hooke, chairman of the National Association of mutual Savings Banks.
"If this situation were allowed to continue, at some point the ability of commercial banks to serve the full range of needs of their customers and their communities would be put in question," said Lee Gunderson, president of the American Bankers Association (reportedly one of the most powerful lobbies in the capital).
Specifically, the banks and S&Ls claim that money-market funds:
* Make it harder to control inflation. By investing millions in corporate paper, these critics say, the funds let companies raise money without borrowing from banks.
* Mess up calculations of the money supply.
* Fool the public. Many funds offer check-writing privileges, and depository officials are squawking that funds are taking on the characteristics of their institutions without insuring investors or being subject to the reserve and other requirements banks and savings-and-loans must meet. They say it's unfair competition.
"If it walks like a duck and quacks like a duck, we think it should be treated like a duck," one S&L official says.
* Endanger the very existence of banks and savings-and-loans by stealing their depositors.
The three bills -- introduced by Rep. Gregory W. Carman (R) of New York; Walter E. Fauntroy (D), delegate from the District of Columbia; and Rep. Jim Leach (R) of Iowa --would all require money-market funds to hold some of their cash in reserve, as depository institutions do. In addition, Mr. Fauntroy's bill would set rate ceilings on money-market funds and require semiannual examinations of the funds.
Will the bills pass? Will the S&Ls prevail?
Little chance, say government sources, for two reasons: The funds have a lot of evidence that is hard to explain away, and many people who have discovered the funds think they are the greatest financial invention since the credit card. In fact, one observer said the subcommittee should have asked the bankers how many of themm owned shares in the funds.
First of all, a fund industry official pointed out that their figures show that only 10 percent of money-market accounts are under $10,000. This means any regulations that lowered their yields would not send money pouring back into regular passbook accounts. instead, investors would pull out and put money directly into their own money-market certificates.
Second, industry figures say the check-writing privileges are not used as a checking account, but only for fund redemptions. The average shareholder writes two or three "checks" (technically bank drafts) a year -- as opposed to 240 a year in a traditional checking account.
"Savings accounts have declined primarily because depositors have shifted into higher-yielding time deposits or NOW accounts -- not because of money funds ," says Edward Taber III, president of the Rowe Price Prime Reserve Fund.
John Evans, commissioner of the Securities and Exchange Commission, testified that he "had no reason to doubt" these industry figures, concluding that the high-yielding funds are already sufficiently regulated and that the government shouldn't intervene more.
Top 20 money market funds . . . Assets 30-day rate * (billions of dollars) 1. Merrill Lynch Ready $16.087 16.3% 2. InterCapital Liquid Asset $6.085 15.8% 3. CMA Money Trust $5.692 15.9% 4. Dreyfus Liquid Assets $5.106 15.0% 5. Cash Reserve Management $4.936 15.8% 6. Paine Webber Cashfund $3.649 15.4% 7. Daily Cash Accumulation $3.518 15.6% 8. Shearson Daily Dividend, Inc. $3.475 15.6% 9. Fidelity Daily Income $3.363 15.1% 10. MoneyMart Assets $2.798 15.7% 11. Reserve $2.761 15.1% 12. Cash Equivalent Fund $2.321 16.6% 13. National Liquid Reserve $2.094 15.4% 14. Rowe Price Prime Reserve $2.060 15.3% 15. Fidelity Cash Reserves $1.628 15.2% 16. Kemper Money Market $1.626 16.4% 17. Liquid Capital Income $1.461 14.7% 18. Oppenheimer Money Market $1.111 15.2% 19. Alliance Capital Reserves $1.078 14.8% 20. NRTA-AARP US Gov't MM Trust $0.995 14.3%
* As of April 1, 1981