Regulators Try to Head Off Liquidity Problems for CRE Funds

The Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) have suggested some significant changes in the operation of open-ended funds, particularly property funds, to protect liquidity. Two notable ones: swing pricing and exit fees.

Nothing fatally stabs financial services the way mismatched liquidities can. In the 1980s during the savings and loan crash, the institutions were caught between heavy long-term mortgage lending and deposits that required much higher rates as the Fed battled inflation at the time. In 1998, Long Term Capital Management collapsed in a liquidity squeeze, got a bailout, and eventually went out of business. The 2008 collapse of Lehman Brothers was another liquidity squeeze. Multiple banks this year closed after assets no longer worth what they were booked at couldn’t keep up with bank runs.