The International Monetary Fund has published a report claiming that even “plain vanilla,” non-systemically important investment funds, including “simple” mutual funds and exchange-traded funds that invest in bonds and equities, may pose financial stability risks. These risks principally arise, says the IMF, because, in particular, bond funds have recently grown a lot, and are increasingly investing in less liquid assets such as emerging market bonds and high-yield corporate debt. According to the IMF, “[t]his has increased the mismatch between the liquidity of funds’ assets and liabilities, because many funds allow investors to redeem on a daily basis.” IMF claims that large redemptions from these funds—possibly instigated by an external event—could have widespread market impact because banks may be “unable or unwilling to step in to provide liquidity in such a situation.” As a result, IMF calls for better supervision of what it terms “institution-level risks.” Currently, it says, the oversight of the investment fund industry centers on investor protection and disclosure. Instead, “[p]olicy makers and regulators should adopt a macroprudential approach to assess the impact of the industry as a whole on the stability of the financial system.” A few weeks ago, the Securities Industry and Financial Markets Association’s Asset Management Group and the Investment Adviser Association submitted a letter to the Financial Stability Oversight Council claiming that asset managers and their funds do not contribute to systemic risk. Indeed, said the letter, “[f]ar from being a source for creating or exacerbating systemic risk, the asset management industry engages in activities and performs functions that consistently moderate such risks.” Last year, the Securities and Exchange Commission adopted new rules related to the structure and operation of money market funds that, among other things, imposed enhanced diversification, disclosure and stress testing requirements.