When Quincy, Mass., Mayor Thomas Koch looked into borrowing $38 million this summer as an advance on a planned bond issue, he was distressed to find the costs had jumped nearly 60 percent since January. Around the same time, a few Japanese banks looking for short-term funds to support their U.S. lending businesses found borrowing costs had almost doubled. Rates on short-term loans between banks have risen to the highest levels in seven years. The common thread: a move by the Securities and Exchange Commission to make money-market funds safer in the wake of the financial crisis, the Wall Street Journal reported today. The regulatory changes are giving investors a reason to flee the $2.7 trillion U.S. money market, putting unintended stress on a crucial funding source for cities, counties and foreign banks.
