Banking organizations will be required to operate with substantially higher capital as a result of Dodd-Frank and the new Basel III capital framework. Some business activities will require more capital than others, particularly those that result in off-balance-sheet exposures for banking organizations. One such area where significantly more capital could be required is the operation of money market funds by large banking organizations.
Many investors consider these funds safer than deposits. During the recent financial crisis, only one money market fund failed, costing investors less than 2 cents on the dollar. But some funds required support from their sponsors to maintain a stable $1 net asset value. Many bank-affiliated money market funds needed such support, largely because of their portfolio investments in structured vehicles that failed.