Introducing the mCD

The Market Traded Certificates of Deposit (mCDs) are a new class of deposit for the post-crisis age. 

We believe that alongside new regulation and research into the causes of banking crises, the products to depositors must change to reduce the risk of another crisis.

Banks and other lending institutions were vulnerable during the 2008 financial crisis due to the risk of rapid deposit withdrawals (a bank run) and the reliance on short-term wholesale funding (the money market). Many economists and major regulators agree that while the crisis began with losses on sub-prime mortgages, its effects were far larger as a result of the failure of financial liquidity. 

This vulnerability was also experienced by money market mutual funds (MMFs) and as result the in 2016 SEC introduced Rule 2a-7 which requires non-government institutional MMFs to trade at Net Asset Value rather than par. Redemption gates were also imposed. This led to a US$1.4 trillion run down of these funds to just 0.4 US$ trillion.

The mCD is designed to reduce this vulnerability by introducing a new class of deposit that can be:

• issued for longer fixed terms, thereby preserving stable funding for the bank in the event of market disruptions, and

• exchange traded by account holders, thereby preserving liquidity for bank customers.