By Agnes T. Crane
NEW YORK, Aug 24 (Reuters Breakingviews) - Money market
funds are creating a new muddle in U.S. regulation. The
Securities and Exchange Commission couldn't agree this week to
invite comment on possible reforms. Other watchdogs may take on
the $2.4 trillion industry. But the episode shows America's
system of regulation in an unflattering light.
SEC Chairman Mary Schapiro had suggested that money market
funds behave like other mutual funds and quote a floating net
asset value. Currently, their NAVs are pegged at $1 per share.
Alternatively, she said, they could hold extra capital and
deploy other mechanisms to limit the likelihood and impact of
customers rushing to withdraw their cash. The Federal Reserve
and the Treasury lined up to support her.
But the fund industry pushed back, pouring millions of
dollars into lobbying and warning that customers might move
their cash to opaque, unregulated recesses of the financial
system. Luis Aguilar, the swing vote among the five SEC
commissioners and a former executive at fund manager Invesco,
echoed these concerns in a statement saying that the matter
needed further, broader study. It's hard to escape the sense
that the fund industry got the better of watchdogs' genuine
concerns this time. After all, the beginnings of a run on money
market funds in September 2008 forced the Treasury to offer a
hurried guarantee to ensure the crisis didn't take another turn
for the worse.
Schapiro wasn't even trying to pass reforms - only to table
them for public debate. Meanwhile, earlier this week, the SEC
finalized a rule on company disclosures aimed at curbing funding
for combatants in the Democratic Republic of Congo. To be fair
this stricture, although ill-suited to the SEC's capabilities,
was mandated under the Dodd-Frank Act. Even so, the contrast
makes the regulator look more serious about policing a distant
conflict than tackling a known systemic risk.
Now the Fed or the Treasury may act. The Fed could, for
instance, tell banks to curb their dealings with money market
funds. Or the Treasury might work to designate big fund managers
systemically important, bringing a new layer of oversight to
bear. But such Plan B approaches are indirect and could have
unintended consequences. America's patchwork of financial
regulation again seems to be undermining clarity of thought and
- Mary Schapiro, chairman of the U.S. Securities and
Exchange Commission, failed in her attempt to propose reforms
for the money market fund industry. Three of the five SEC
commissioners blocked her plans designed to make the funds less
susceptible to runs and lessen the need for future bailouts.
- Money market funds registered with the SEC have $2.4
trillion under management, according to Lipper.
- Commissioner Luis Aguilar was considered the swing vote,
and his decision to block the proposals ended Schapiro's hopes
of bringing reforms forward.
- Major fund sponsors including Fidelity Investments of
Boston and Federated Investors of Pittsburgh have been among the
most vocal critics of the proposed changes.
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
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