themselves have been eligible for direct investment. on both sides of the atlantic, many are so - called constant net asset value ( cnav ) funds. 3 stripping through the detail, this means that they promise to return to savers, on demand, at least as much as they invest. just like a bank. and just like a bank, they are subject to runs. if i, an investor, lodge notice of redemption one day, typically i expect to be paid the following day. if my withdrawal is large, the fund may have to sell assets to meet the redemption. if investors know or fear that a lot of their peers will also be redeeming, then they have an see baba n, mccauley r and ramaswamy s ( 2009 ), “ us dollar money market funds and non - us banks ”, bis quarterly review, march 2009. incentive to ( try to ) get in first, in order to avoid the depletion in the value of the fund likely to flow from the forced asset sales. and, if a constant - nav fund ’ s value goes just a few basis points below par ( 100p in the £1 ), they effectively have to close, fuelling the incentive to run. if this sounds like a bank, it is because it is just like a bank. the money fund industry is a major supplier of short - term funding to banks. so its own maturity mismatch masks the true liquidity position of the banking sector, and injects extra fragility into the financial system as a whole. this is no longer theoretical. 4 when the reserve fund “ broke the buck ” after lehman ’ s failure, there was a run by institutional investors. the industry had to be given access to central banks ’ liquidity facilities to contain the vortex. many banking groups running supposedly arms - length money funds injected “ capital ” into their funds to keep them afloat. yet the funds had not been consolidated, and their bank sponsors had not had to hold capital against such implicit support. echoing the concerns that paul volcker is reported to have expressed at internal federal reserve meetings around thirty years ago, 5 the bank of england believes that constant - nav money funds should not exist in their current form. they should become either regulated banks or, alternatively, variable nav funds that do not offer instant liquidity. meanwhile, so - called “ enhanced return " funds should surely have to make clear what they are and what they are not

to revive the mortgage - bond market, and the securitisation markets more generally, given their potential significance for the financing of households and firms. that eagerness is hardly surprising given the likely strain on the western world ’ s banking system if, over the coming few years, it had to reintermediate flows of credit that had previously gone through the abs markets. some have suggested that asset - backed - securities are yet another form of shadow banking. at one level, this seems obvious. take northern rock. when it ran out of money, the authorised bank had a balance sheet of around £50bn, virtually all mortgages. the same management team was running the “ granite ” securitisation vehicle ; also with a balance sheet of about £50bn, and also all mortgages. granite held surplus liquidity with its sister bank, which was not immaterial to northern rock ’ s funding. when the rmbs market closed and granite could not continue to expand, the management team had a backlog of mortgages that the bank was temporarily warehousing but was likely to be unable to finance permanently. that undermined confidence in the bank itself. and if the bank had been downgraded, granite might have had to pull its funding. so they were very inter - twined. for accounting purposes, granite had to be consolidated. for regulatory capital purposes, granite was largely off - balance sheet. the basel supervisors committee is now reviewing its capital rules on securitisation. but another basic principle may commend itself ; we should not allow one management team to run two apparently separate and significant vehicles in a completely joined up way – one a de jure bank, the other a de facto bank – when the funding and risk interlinkages are so strong. some commentators have argued that the extent to which the securitisation market has the economic characteristics of banking goes deeper than that. 10 this account goes broadly as follows. the lehmans crisis and its aftermath had at its core a run on repo financing of holdings of, amongst other things, rmbs and other abs. the banking system had originated assets and issued them into capital markets via abs. but the same banking industry financed investors ’ purchase and holding of those abs ; and then financed themselves via short - term reverse - repo of those assets. in other words, across the system there was too great an element of banks ( and dealers ) having shed credit portfolios only so long as