(Adds detail from speech, context) LONDON, May 12 (Reuters) - Bank of England Governor Andrew Bailey said regulators needed to come up with reforms that address vulnerabilities in money market funds which were exposed by the “dash for cash” at the onset of the coronavirus pandemic last year. Investors in British money market funds withdrew 25 billion pounds ($35 billion), equivalent to 10% of their total holdings, between March 12 and March 20 last year, contributing to the BoE’s decision to restart both its bond purchase programme and an emergency repo facility. The United States faced similar problems and the Federal Reserve launched a new lending programme for markets too. “The dash for cash provided an unwelcome reminder that the post-financial crisis (reforms) did not finish the job and left a dangerous gap in our exposure to the risk of financial instability,” Bailey said in a speech to the International Swaps and Derivatives Association. “We must finish the task this time,” he said. Bailey said change was needed because some money market funds (MMFs) still presented themselves to investors as being cash-like - offering immediate access to funds, and very low risk - while holding a large proportion of less liquid assets that can be hard to trade in a hurry. The Financial Stability Board, a group of major supervisors, will consult shortly on regulatory change. “We may end up with some MMFs becoming more cash-like and some less cash-like, but we need to avoid the muddy middle,” Bailey said. Some money market funds could see their holdings limited to highly liquid, safe government assets such as Treasury bills and gilt repos, although in Britain there may not be enough of these assets to meet investor demand. Other funds could require a short notice period, although that would make them less suitable for many existing investors and would increase demand for bank deposits. A third option would be to allow instant-access money market funds to hold a mix of liquid government assets and a limited amount of less liquid assets such as commercial paper. This would require changes to existing regulations to remove current incentives for investors to withdraw their money at the first sign of trouble, or risk their funds being trapped for a long time after withdrawals were suspended. “Properly differentiated, there may be a role for funds of each of these types,” Bailey said. ($1 = 0.7092 pounds) (Additional reporting by William Schomberg; Editing by Alison Williams)