By Sarah N. Lynch and Emily Stephenson
WASHINGTON, Nov 13 (Reuters) - The U.S. financial risk
council on Tuesday rolled out a framework of new rules for the
$2.5 trillion money market fund industry, saying current
regulations are not enough to prevent runs in a time of crisis.
The Financial Stability Oversight Council's proposal largely
mirrors a plan that was championed this summer by Securities and
Exchange Commission Chairman Mary Schapiro, but it failed to
garner enough support from three of her colleagues.
The proposal by the FSOC, a council of federal financial
regulators created by the 2010 Dodd-Frank reform law and chaired
by Treasury Secretary Timothy Geithner, could pressure the SEC
to agree on a course of action.
Regulators said money fund reforms remain a key piece of
unfinished business after the 2007-2009 financial crisis.
"Our hope, of course, is that a public debate on a series of
concrete options would provide a basis for the SEC to move
forward," Geithner said during the meeting.
He said the council's recommendation consists of three main
options. One would call for funds to hold a capital buffer of up
to 1 percent of a fund's value and impose redemption holdbacks
in times of stress.
Another would call for a move from a stable to a floating
net asset value.
A third option would impose a higher buffer of 3 percent of
a fund's value, but funds could hold less capital if they met
After a public comment period, the plan is likely to be
formally presented to the SEC for consideration. The agency
would then need to embrace it or reject it in writing within 90
During the financial crisis, heavy exposure to collapsed
investment bank Lehman Brothers caused the Reserve Primary
Fund's net asset value to fall below $1 per share, or "break the
buck" in industry parlance.
Financial regulators said a series of 2010 fund reforms
imposed by the SEC were not sufficient to reduce the risk of
runs on money market funds.
Many money market funds and corporate treasurers have said
Schapiro's proposal could drive investors out of money market
funds and harm companies that use the products for short-term
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