MEMORANDUM

To File No 4-619

From Jennifer B McHugh Senior Advisor to the Chairman

Date April 24 2012

Re Telephone Discussion with Representatives of Treasury Strategies

On April 23 2012 Senior Advisor to the Chairman Jennifer B McHugh participated in a telephone discussion with the following representatives of Treasury Strategies

Tony Carfang Partner Cathy Gregg Partner Jacob Nygren Manager

The discussion focused on the attached set of materials

Level-Setting the MMF Debate

Presented To

-j

~)

April 4 2012

Treasur~ Strategie

f~ The Power of Experi

lt) )

C)C~C)c)

OOOC ~~ TreUnderstanding a Financial Run Stra

Types of Financial Runs

Type Proximate Cause

Credit-Driven Credit loss

Liquidity-Driven Market seizing

Speculative Uncertaintymisinformation

1 l~ i -~----

~) ~-)

TreasuJV ~ Understanding aFinancial Run Strate~ gt~m

Timing of a Run

bull Panic environment bull Short duration

bull Extended duration bull Investors cease to rollover or reinvest upon

maturity bull Crescendo bull Precipitating event can easily trigger firestorm run

Firestorm

Prolonged

~J ~-lR~~~~~~~ - A AAamp- ~_ -ll~middotmiddot)t middotmiddot~6DfliiQrnf I=vhorln~

~ I)

gt~~

Overview of MMF Total Assets Treasury Q

Strate~2007middot2009 J~lIm

Market Total Assets of MMFls ($ MIllions)

4500000 ---------------- ----shy

bull MMF assets at $24 trillion on January 1 2007

bull Peaked at $39 trillion on January 14 2009

~ ~ ~ ~ ~ ~ ~ ~ ~ I ~ ~ ~ ~ ~ ~ ~ ~ J~~IJ~~~~~~~I

4000000 +-1-------------------------- shy

3soo000 +1-----------

3000000 +1--------shy

I 2sooooo ~ lth 2000000

lsooooo

1000000

500000

o

Source Investment Company Institute Historical Data amp Treasury Strategies Inc 1_1(_t~ amp ijMiWj~3AI~tlt~1j-~~~~~middotmiddoti

-- _~~iI~mi~~0t M~AJA nf Fvnegtrion

Level-Setting the MMF Debate

Presented To

-j

~)

April 4 2012

Treasur~ Strategie

f~ The Power of Experi

lt) )

C)C~C)c)

OOOC ~~ TreUnderstanding a Financial Run Stra

Types of Financial Runs

Type Proximate Cause

Credit-Driven Credit loss

Liquidity-Driven Market seizing

Speculative Uncertaintymisinformation

1 l~ i -~----

~) ~-)

TreasuJV ~ Understanding aFinancial Run Strate~ gt~m

Timing of a Run

bull Panic environment bull Short duration

bull Extended duration bull Investors cease to rollover or reinvest upon

maturity bull Crescendo bull Precipitating event can easily trigger firestorm run

Firestorm

Prolonged

~J ~-lR~~~~~~~ - A AAamp- ~_ -ll~middotmiddot)t middotmiddot~6DfliiQrnf I=vhorln~

~ I)

gt~~

Overview of MMF Total Assets Treasury Q

Strate~2007middot2009 J~lIm

Market Total Assets of MMFls ($ MIllions)

4500000 ---------------- ----shy

bull MMF assets at $24 trillion on January 1 2007

bull Peaked at $39 trillion on January 14 2009

~ ~ ~ ~ ~ ~ ~ ~ ~ I ~ ~ ~ ~ ~ ~ ~ ~ J~~IJ~~~~~~~I

4000000 +-1-------------------------- shy

3soo000 +1-----------

3000000 +1--------shy

I 2sooooo ~ lth 2000000

lsooooo

1000000

500000

o

Source Investment Company Institute Historical Data amp Treasury Strategies Inc 1_1(_t~ amp ijMiWj~3AI~tlt~1j-~~~~~middotmiddoti

-- _~~iI~mi~~0t M~AJA nf Fvnegtrion

lt) )

C)C~C)c)

OOOC ~~ TreUnderstanding a Financial Run Stra

Types of Financial Runs

Type Proximate Cause

Credit-Driven Credit loss

Liquidity-Driven Market seizing

Speculative Uncertaintymisinformation

1 l~ i -~----

~) ~-)

TreasuJV ~ Understanding aFinancial Run Strate~ gt~m

Timing of a Run

bull Panic environment bull Short duration

bull Extended duration bull Investors cease to rollover or reinvest upon

maturity bull Crescendo bull Precipitating event can easily trigger firestorm run

Firestorm

Prolonged

~J ~-lR~~~~~~~ - A AAamp- ~_ -ll~middotmiddot)t middotmiddot~6DfliiQrnf I=vhorln~

~ I)

gt~~

Overview of MMF Total Assets Treasury Q

Strate~2007middot2009 J~lIm

Market Total Assets of MMFls ($ MIllions)

4500000 ---------------- ----shy

bull MMF assets at $24 trillion on January 1 2007

bull Peaked at $39 trillion on January 14 2009

~ ~ ~ ~ ~ ~ ~ ~ ~ I ~ ~ ~ ~ ~ ~ ~ ~ J~~IJ~~~~~~~I

4000000 +-1-------------------------- shy

3soo000 +1-----------

3000000 +1--------shy

I 2sooooo ~ lth 2000000

lsooooo

1000000

500000

o

Source Investment Company Institute Historical Data amp Treasury Strategies Inc 1_1(_t~ amp ijMiWj~3AI~tlt~1j-~~~~~middotmiddoti

-- _~~iI~mi~~0t M~AJA nf Fvnegtrion

1 l~ i -~----

~) ~-)

TreasuJV ~ Understanding aFinancial Run Strate~ gt~m

Timing of a Run

bull Panic environment bull Short duration

bull Extended duration bull Investors cease to rollover or reinvest upon

maturity bull Crescendo bull Precipitating event can easily trigger firestorm run

Firestorm

Prolonged

~J ~-lR~~~~~~~ - A AAamp- ~_ -ll~middotmiddot)t middotmiddot~6DfliiQrnf I=vhorln~

~ I)

gt~~

Overview of MMF Total Assets Treasury Q

Strate~2007middot2009 J~lIm

Market Total Assets of MMFls ($ MIllions)

4500000 ---------------- ----shy

bull MMF assets at $24 trillion on January 1 2007

bull Peaked at $39 trillion on January 14 2009

~ ~ ~ ~ ~ ~ ~ ~ ~ I ~ ~ ~ ~ ~ ~ ~ ~ J~~IJ~~~~~~~I

4000000 +-1-------------------------- shy

3soo000 +1-----------

3000000 +1--------shy

I 2sooooo ~ lth 2000000

lsooooo

1000000

500000

o

Source Investment Company Institute Historical Data amp Treasury Strategies Inc 1_1(_t~ amp ijMiWj~3AI~tlt~1j-~~~~~middotmiddoti

-- _~~iI~mi~~0t M~AJA nf Fvnegtrion

~ I)

gt~~

Overview of MMF Total Assets Treasury Q

Strate~2007middot2009 J~lIm

Market Total Assets of MMFls ($ MIllions)

4500000 ---------------- ----shy

bull MMF assets at $24 trillion on January 1 2007

bull Peaked at $39 trillion on January 14 2009

~ ~ ~ ~ ~ ~ ~ ~ ~ I ~ ~ ~ ~ ~ ~ ~ ~ J~~IJ~~~~~~~I

4000000 +-1-------------------------- shy

3soo000 +1-----------

3000000 +1--------shy

I 2sooooo ~ lth 2000000

lsooooo

1000000

500000

o

Source Investment Company Institute Historical Data amp Treasury Strategies Inc 1_1(_t~ amp ijMiWj~3AI~tlt~1j-~~~~~middotmiddoti

-- _~~iI~mi~~0t M~AJA nf Fvnegtrion

II

i

1- ~ (

Overview of MMF Total Assets TreasuJY Stra~~2007middot2009

Market Total Assets of MMFs ($ Millions) A) Bear Stearns RE fund fails

4~~~1-----------------------------__________ o CD (pound) regltE0 regltE(D B) Major ABCP downgrades

4~~ tl------------------------------ shy

J~ooo +-1------------

J~ooo I

C) GE fund moves to floating NAV and enhanced cash funds freeze

D) Countrywide rescued

sect 2500~ E) Auction-rate securities freeze F) Bear Stearns rescued ~ 2~ooo

G) Indy Mac Bank fails 1500~

H) Fannie Mae and Freddie Mac 1000000 fail

500000 I) Lehman fails Merrill rescued Reserve fails AIG rescued

o WaMu $16B run ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ A ~ ~ A ~ ~ ~~~~~~~~~~-~~~~~~~~ ~ IJ ~ CIj ~- ~- IJ j ~ ~- I) CI)- ~

Source Investment Company Institute Historical Data amp Treasury Strategies Inc

l bull lA 442ampamp22amp2I==_fiiifti5-aMWWi~~if7~~~~~~i~~~middot~~ Q

200000 t-- shy

100000

o-Ii ~ ~i ~ dgt~ ~~dgt ~J~ ~ ~~ ~ ~

~ ~ 1~ II) ~ ~ ~ 1~ II)~ ~ ~ ~ 1~ ~ l

-TreasuJV ~Retail Money Market Funds Strate~

bull -~$

middot~middot---~I~l~middotmiddot~~T~~gt+h 8h~ ltMW I4t -middot1fJ~Fksect -W 1t5i~)~

Retail Govt MMFs ($ Millions)

900000 ---------------- shy

100000 t- shy

700000 -1------- shybull Assets grew steadily as crisis unfolded

600000 ------ shy from June 2007 -September 2008 i 500000 t------middotmiddotmiddot 400000 -- --- shy

bull Run into Government MMFs week of 1000001-------middot - September 15 2008

Retail Prime MMFs ($ Millions)

900000 T

I100000 t-shy

IIIIIIIRilIITl ill Iilll i illlll III bull Assets grew steadily as crisis 700000

1111 Ii ill 111 IIImiddotII i IltIIIII II 11I III unfolded from June 2007 -September 1 I 111 II II600000

11111111111 111111 11I111111 il illl III 2008I I 11 li1 ill Ii II I ]500000

bull 400000 1lllliIllllllilli llli ill III III 1111111 III

11middot11 ill Ii 11 1 11 II 111111 II ill ill III I Imiddot II 111 imiddot 1111 I i II bull Small decline during the week of100000

111 111111111111 I 111 III1[ bull i i iiill I i II I I lillll I September 15 2008 200000

III 1111111111 I111II ill III II I III Iii III 100000

1111 illi 11111111 III II ill 1111111 111111 III o $~~~~~pound~~~~~~~~~

IY ~ s I~ ~ s I y

Source Investment Company Institute Historical Data amp Treasury Strategies Inc

Treasury QInstitutional Money Market Funds Strate~ -gt-~J~

Institutional Govt MMFs 140111X1O --~yUJlIl_U~____

bull Major inflow of assets from June 2007shySeptember 2008

bull Run into Government MMFs during the week of September 15 2008

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~-~~~~~~~~~~~~ ~ OJ OJ OJ ~ OJ

Institutional Prime MMFs ($ MIllions)

1AOOOOO --- --------------__--shy

bull Major inflow of assets from June 2007shySeptember 2008

bull Decline of assets to early-2007 baseline during the week of September 15 2008

bull Growth of non-guaranteed assets beginning October 2008

Source Investment Company Institute Historical Data amp Treasury Strategies Inc

121)0000 1 --

11X1OOOO +-1-------- shy

1000001 ---- shy ---- shy

600000 +-1----------

400lXlO +-1----------

200lXlO

o

121)0000 +T

11X1OIXIO -I-I---

100000

500000

400000

200000

o

~amp I J-~ ~ ~ ~ __ ~lljlI IIIIIZlllIlJIlU44~~Alb~~~_$RI~JIlZ~NP~~Y7~i~~middot~~o1-~~7middot~~~~~-~-~ ___IlalamplIalljQlJlkljJlLCIII bullJIl

--

Treasury ~ Institutional Prime MMFs Strate~ ~ L ~

Institutional Prime MMFs ($ Millions)

1600000 r-- shy

A) Prolonged run from othero reg o impaired liquidity asset

+~----------classes into institutional prime 607-908

8) Assets revert to original baseline week of

i September 15 2008 e ~

C) New non-guaranteed inflows from 1008-709

lAOOooo

1200000 +-----------~ -

o ~ ~ ~ ~ ~ ~ ~ ~ ~ A A ~ ~ A ~ A ~ ~

t~~J~~~J~~$

Source Investment Company Institute Historical Data amp Treasury Strategies Inca 5 SdIpoundJt_poundltMampMtamppoundiiiful1it~~~~ltj-- --- 14

- - - - be Iu~r vtorl~nro

200000 t-- shy

100000

o-Ii ~ ~i ~ dgt~ ~~dgt ~J~ ~ ~~ ~ ~

~ ~ 1~ II) ~ ~ ~ 1~ II)~ ~ ~ ~ 1~ ~ l

-TreasuJV ~Retail Money Market Funds Strate~

bull -~$

middot~middot---~I~l~middotmiddot~~T~~gt+h 8h~ ltMW I4t -middot1fJ~Fksect -W 1t5i~)~

Retail Govt MMFs ($ Millions)

900000 ---------------- shy

100000 t- shy

700000 -1------- shybull Assets grew steadily as crisis unfolded

600000 ------ shy from June 2007 -September 2008 i 500000 t------middotmiddotmiddot 400000 -- --- shy

bull Run into Government MMFs week of 1000001-------middot - September 15 2008

Retail Prime MMFs ($ Millions)

900000 T

I100000 t-shy

IIIIIIIRilIITl ill Iilll i illlll III bull Assets grew steadily as crisis 700000

1111 Ii ill 111 IIImiddotII i IltIIIII II 11I III unfolded from June 2007 -September 1 I 111 II II600000

11111111111 111111 11I111111 il illl III 2008I I 11 li1 ill Ii II I ]500000

bull 400000 1lllliIllllllilli llli ill III III 1111111 III

11middot11 ill Ii 11 1 11 II 111111 II ill ill III I Imiddot II 111 imiddot 1111 I i II bull Small decline during the week of100000

111 111111111111 I 111 III1[ bull i i iiill I i II I I lillll I September 15 2008 200000

III 1111111111 I111II ill III II I III Iii III 100000

1111 illi 11111111 III II ill 1111111 111111 III o $~~~~~pound~~~~~~~~~

IY ~ s I~ ~ s I y

Source Investment Company Institute Historical Data amp Treasury Strategies Inc

Treasury QInstitutional Money Market Funds Strate~ -gt-~J~

Institutional Govt MMFs 140111X1O --~yUJlIl_U~____

bull Major inflow of assets from June 2007shySeptember 2008

bull Run into Government MMFs during the week of September 15 2008

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~-~~~~~~~~~~~~ ~ OJ OJ OJ ~ OJ

Institutional Prime MMFs ($ MIllions)

1AOOOOO --- --------------__--shy

bull Major inflow of assets from June 2007shySeptember 2008

bull Decline of assets to early-2007 baseline during the week of September 15 2008

bull Growth of non-guaranteed assets beginning October 2008

Source Investment Company Institute Historical Data amp Treasury Strategies Inc

121)0000 1 --

11X1OOOO +-1-------- shy

1000001 ---- shy ---- shy

600000 +-1----------

400lXlO +-1----------

200lXlO

o

121)0000 +T

11X1OIXIO -I-I---

100000

500000

400000

200000

o

~amp I J-~ ~ ~ ~ __ ~lljlI IIIIIZlllIlJIlU44~~Alb~~~_$RI~JIlZ~NP~~Y7~i~~middot~~o1-~~7middot~~~~~-~-~ ___IlalamplIalljQlJlkljJlLCIII bullJIl

--

Treasury ~ Institutional Prime MMFs Strate~ ~ L ~

Institutional Prime MMFs ($ Millions)

1600000 r-- shy

A) Prolonged run from othero reg o impaired liquidity asset

+~----------classes into institutional prime 607-908

8) Assets revert to original baseline week of

i September 15 2008 e ~

C) New non-guaranteed inflows from 1008-709

lAOOooo

1200000 +-----------~ -

o ~ ~ ~ ~ ~ ~ ~ ~ ~ A A ~ ~ A ~ A ~ ~

t~~J~~~J~~$

Source Investment Company Institute Historical Data amp Treasury Strategies Inca 5 SdIpoundJt_poundltMampMtamppoundiiiful1it~~~~ltj-- --- 14

- - - - be Iu~r vtorl~nro

Treasury QInstitutional Money Market Funds Strate~ -gt-~J~

Institutional Govt MMFs 140111X1O --~yUJlIl_U~____

bull Major inflow of assets from June 2007shySeptember 2008

bull Run into Government MMFs during the week of September 15 2008

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~-~~~~~~~~~~~~ ~ OJ OJ OJ ~ OJ

Institutional Prime MMFs ($ MIllions)

1AOOOOO --- --------------__--shy

bull Major inflow of assets from June 2007shySeptember 2008

bull Decline of assets to early-2007 baseline during the week of September 15 2008

bull Growth of non-guaranteed assets beginning October 2008

Source Investment Company Institute Historical Data amp Treasury Strategies Inc

121)0000 1 --

11X1OOOO +-1-------- shy

1000001 ---- shy ---- shy

600000 +-1----------

400lXlO +-1----------

200lXlO

o

121)0000 +T

11X1OIXIO -I-I---

100000

500000

400000

200000

o

~amp I J-~ ~ ~ ~ __ ~lljlI IIIIIZlllIlJIlU44~~Alb~~~_$RI~JIlZ~NP~~Y7~i~~middot~~o1-~~7middot~~~~~-~-~ ___IlalamplIalljQlJlkljJlLCIII bullJIl

--

Treasury ~ Institutional Prime MMFs Strate~ ~ L ~

Institutional Prime MMFs ($ Millions)

1600000 r-- shy

A) Prolonged run from othero reg o impaired liquidity asset

+~----------classes into institutional prime 607-908

8) Assets revert to original baseline week of

i September 15 2008 e ~

C) New non-guaranteed inflows from 1008-709

lAOOooo

1200000 +-----------~ -

o ~ ~ ~ ~ ~ ~ ~ ~ ~ A A ~ ~ A ~ A ~ ~

t~~J~~~J~~$

Source Investment Company Institute Historical Data amp Treasury Strategies Inca 5 SdIpoundJt_poundltMampMtamppoundiiiful1it~~~~ltj-- --- 14

- - - - be Iu~r vtorl~nro

--

Treasury ~ Institutional Prime MMFs Strate~ ~ L ~

Institutional Prime MMFs ($ Millions)

1600000 r-- shy

A) Prolonged run from othero reg o impaired liquidity asset

+~----------classes into institutional prime 607-908

8) Assets revert to original baseline week of

i September 15 2008 e ~

C) New non-guaranteed inflows from 1008-709

lAOOooo

1200000 +-----------~ -

o ~ ~ ~ ~ ~ ~ ~ ~ ~ A A ~ ~ A ~ A ~ ~

t~~J~~~J~~$

Source Investment Company Institute Historical Data amp Treasury Strategies Inca 5 SdIpoundJt_poundltMampMtamppoundiiiful1it~~~~ltj-- --- 14

- - - - be Iu~r vtorl~nro

middotshy~

Treasury ~The Week of September 15 2008 Strate~ lt~-~

- middot--middotmiddot~ ~~gt1--~~~~middot-if1tgt0 middotSP$-iH_9i~ i_-leuro1~~

828-912 -09 I Fannie amp Freddie fail est $200B

Merrill Lynch rescued

I Run on WaMu $164B 915 -609

Lehman Brothers fails as Fed guarantees $138B

Reserve Primary Fund halts redemptions

Reserve Primary Fund officially breaks the buck -370 Iwith $785M loss on Lehman

AIG unexpectedly fails $85B after the market close

917

916

-1299 I

-939918

-248 Temporary Guarantee Program implemented 919

+1324 Cash inflows above the guarantee level 922-1231

Including approx $54 billion from Reserve

g hW~Nff~l~middot~~~~l-V-Yfmiddotmiddot - ~~bullbullt ~ ~~~~~1W-i~~r-tt~middot~~middot~middotmiddotnA jri~-nfmiddotlvrorl ___ ~ iG

)1

Regulatory Landscape

-- i-~t-~~(~ ~middot~ltlt-0q~~1) l CmiddotF4yenFHHk R~W yenejlt--S~3 itf~

Changes to Rule 2a-7 implemented in 2010

bull More robust fund liquidity measures

bull Stronger portfolio quality standards

bull Shorter maturity limits

bull Increased transparency of portfolio holdings and valuations

bull Independent ratings and reporting requirements

Discussion of additional regulation

bull Floating NAV

bull Capital

bull Holdback

S~-

TreasuJV ~ Strat~~

~$

III Pda4poundMW4iyenf1liyenipoundampmWIjlpound$~l~~~___I_ - ~ J IJ~~~II~I~~lt~ ~ pf

1 bull

)

)0

Floating NAV

~~ ~~0 ~-r-~~ +yen~raquo tmiddot1fdtt8~bulltBImiddot1~middot~yen- ~9y1 4ffJfft~~

Treasury Strategies concerns with the floating NAV proposal for MMFs

bull Volatility of capital

bull Accountingtax reporting complexities

bull Administrative challenges

bull Legal and investment policy constraints

bull Operational inconveniences

bull Unpredictability for cash forecasting purposes

bull Failure of similar floating NAV instruments

-

Treasury ct

Strat~ ~~-

1r~middotmiddot~a(JqnampMiipoundIIlwjj$ffli1Illll1~~Tl7~ ~II- ~~Ti)~~i)i(1t)~~~~middot~middotmiddotmiddot~middotmiddot~I ~ _ _shy

1 bull

)

)0

Floating NAV

~~ ~~0 ~-r-~~ +yen~raquo tmiddot1fdtt8~bulltBImiddot1~middot~yen- ~9y1 4ffJfft~~

Treasury Strategies concerns with the floating NAV proposal for MMFs

bull Volatility of capital

bull Accountingtax reporting complexities

bull Administrative challenges

bull Legal and investment policy constraints

bull Operational inconveniences

bull Unpredictability for cash forecasting purposes

bull Failure of similar floating NAV instruments

-

Treasury ct

Strat~ ~~-

1r~middotmiddot~a(JqnampMiipoundIIlwjj$ffli1Illll1~~Tl7~ ~II- ~~Ti)~~i)i(1t)~~~~middot~middotmiddotmiddot~middotmiddot~I ~ _ _shy

~~)(

lt

Treasury aCapital Requirement Strat~ lt-0

Treasury Strategies concerns with the capital requirement proposal for MMFs

bull Reduced transparency for investors

bull Confusion leading to more risk aversepanic-prone investors

bull Increased moral hazard for fund companies and investors

bull Asset management firms and bank advisors exiting the business

bull Increased volatility

bull Increased costs and decreased yields especially for retail investors and smaller fund companies

bull Increased concentration of assets into the largest banks

bull Creation of new AIG-like systemic risks

~lAI-j WfuiUMEkIftt~1$~~~1~~1~fSmiddot~~

-1() shy

TreasUfY ~ Redemption Holdback Strat~ -1

Treasury Strategies primary concerns with the redemption holdback proposal for MMFs

bull Will create a thirty-day look ahead phenomenon that will trigger a firestorm run at the first sign of financial stress in an instrument in any market

bull Will not eliminate a first-mover advantage

bull Will result in a vast if not total reduction of assets in MMFs crippling the industry and cutting off a primary source of credit for corporate and municipal borrowers

bull Will not treat all shareholders equally

Additional Treasury Strategies concerns

bull Maturity extension without yield increase

bull Restricted liquidity for investors

bull Disenfranchised fiduciaries

bull Movement of funds into unregulated instruments and exacerbation of too big to fail

bull Operational infeasibility

bull Penalties for retail investors

bull Ineffective solution in eliminating first-mover advantage

bull Problems with omnibus accounts

bull Restricted financing for borrowers

L_bullbullbull__ amp2 bE L=Jm_middotmiddotyeni1r~1~i~~~~=~middot~middot

j tmiddot )

i~-

TreasuJV ~Other Major Regulatory Changes Strate~ gt~uf

~ t~-~~-~~~ ~~fmiddot y~fo~~~yjfyenyenN5Nkf)9imyen3Jp~~t pbullbull qi~ _~~~

Other recent regulatory changes impacting corporate and institutional investors

bull Derivatives regulations

bull Basel III

bull Volcker Rule

bull Unlimited FDIC insurance

bull Repeal of Reg Q

bull Fees on daylight overdrafts

bull Interest on reserve balances

Can the market digest all these changes simultaneously

~~e ___-r-ro~Crmiddot~~

~~

TreasuJV ~ Seriously Strate~ bull -middotI~~

A prolonged run occurred throughout 2007 and first eight months of 2008

bull from several impaired liquidity asset classes

bull into prime and government MMFs

Reserve Primary Fund experienced a contained credit-driven run as a result of the failure of Lehman Brothers

The failure of AIG sparked an unexpected speculative run

bull from all non-government backed liquidity asset classes

bull into government securities and government guaranteed bank accounts

Within one month the flow of assets into non-government guaranteed institutional prime funds resumed

bull middot6~B bull 121 2 -

e~-

Treasury ~ The Way Forward Strate~ -~~fi

The 2010 changes to Rule 2a-7 clearly address each type of run

Credit-Driven Credit loss Tightened credit standards

Increased diversification

Liquidity-Driven Market seizing Shortened maturity structure

Instituted liquidity requirement bull 10 next day bull 30 weekly

Speculative Reporting of holdings

Reporting of shadow NAV

Uncertaintymisinformation

Therefore no further changes are necessary

D++ j _ ~- ~ ~ bullbull ~ ~ bullbull J __ ~~ _LM2a2tpoundupoundgCM-JpoundtASlIWiMj~5Wff4I~FWr6Q8~~~~~~~ -2

j tmiddot )

i~-

TreasuJV ~Other Major Regulatory Changes Strate~ gt~uf

~ t~-~~-~~~ ~~fmiddot y~fo~~~yjfyenyenN5Nkf)9imyen3Jp~~t pbullbull qi~ _~~~

Other recent regulatory changes impacting corporate and institutional investors

bull Derivatives regulations

bull Basel III

bull Volcker Rule

bull Unlimited FDIC insurance

bull Repeal of Reg Q

bull Fees on daylight overdrafts

bull Interest on reserve balances

Can the market digest all these changes simultaneously

~~e ___-r-ro~Crmiddot~~

~~

TreasuJV ~ Seriously Strate~ bull -middotI~~

A prolonged run occurred throughout 2007 and first eight months of 2008

bull from several impaired liquidity asset classes

bull into prime and government MMFs

Reserve Primary Fund experienced a contained credit-driven run as a result of the failure of Lehman Brothers

The failure of AIG sparked an unexpected speculative run

bull from all non-government backed liquidity asset classes

bull into government securities and government guaranteed bank accounts

Within one month the flow of assets into non-government guaranteed institutional prime funds resumed

bull middot6~B bull 121 2 -

e~-

Treasury ~ The Way Forward Strate~ -~~fi

The 2010 changes to Rule 2a-7 clearly address each type of run

Credit-Driven Credit loss Tightened credit standards

Increased diversification

Liquidity-Driven Market seizing Shortened maturity structure

Instituted liquidity requirement bull 10 next day bull 30 weekly

Speculative Reporting of holdings

Reporting of shadow NAV

Uncertaintymisinformation

Therefore no further changes are necessary

D++ j _ ~- ~ ~ bullbull ~ ~ bullbull J __ ~~ _LM2a2tpoundupoundgCM-JpoundtASlIWiMj~5Wff4I~FWr6Q8~~~~~~~ -2

~~

TreasuJV ~ Seriously Strate~ bull -middotI~~

A prolonged run occurred throughout 2007 and first eight months of 2008

bull from several impaired liquidity asset classes

bull into prime and government MMFs

Reserve Primary Fund experienced a contained credit-driven run as a result of the failure of Lehman Brothers

The failure of AIG sparked an unexpected speculative run

bull from all non-government backed liquidity asset classes

bull into government securities and government guaranteed bank accounts

Within one month the flow of assets into non-government guaranteed institutional prime funds resumed

bull middot6~B bull 121 2 -

e~-

Treasury ~ The Way Forward Strate~ -~~fi

The 2010 changes to Rule 2a-7 clearly address each type of run

Credit-Driven Credit loss Tightened credit standards

Increased diversification

Liquidity-Driven Market seizing Shortened maturity structure

Instituted liquidity requirement bull 10 next day bull 30 weekly

Speculative Reporting of holdings

Reporting of shadow NAV

Uncertaintymisinformation

Therefore no further changes are necessary

D++ j _ ~- ~ ~ bullbull ~ ~ bullbull J __ ~~ _LM2a2tpoundupoundgCM-JpoundtASlIWiMj~5Wff4I~FWr6Q8~~~~~~~ -2

e~-

Treasury ~ The Way Forward Strate~ -~~fi

The 2010 changes to Rule 2a-7 clearly address each type of run

Credit-Driven Credit loss Tightened credit standards

Increased diversification

Liquidity-Driven Market seizing Shortened maturity structure

Instituted liquidity requirement bull 10 next day bull 30 weekly

Speculative Reporting of holdings

Reporting of shadow NAV

Uncertaintymisinformation

Therefore no further changes are necessary

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Tony Carfang Partner (312) 443-0840 Tony _ CarfangTreasuryStrategiescom

Cathy Gregg Partner (312) 443-0840 Cathy_GreggTreasuryStrategiescom

Jaco~ Nygren Manager (312) 443-0840 Jacob_NygrenTreasuryStrategiescom

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Who WeAre

Treasury Strategies Inc is the leading treasury consulting firm working with corporations and financial services providers Our experience and thought leadership in treasury management working capital management liquidity and payments combined with our comprehensive view of the market rewards you with a unique perspective unparalleled insights and actionable solutions

What We Do Locations Corporations

Chicago bull London bull New York We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices technology liquidity and controls Accreditations

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We provide guidance through every step of the technology -----------------shySWIFT for corporates - 2009

process Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated shytechnology solutions

Connect with Us Financial Services

wwwTreasuryStrategiescom Our experience analytic approach and benchmarks provide contenUnetworking-communities1m unique consulting solutions to help you strengthen and grow

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