President's Working Group Releases Report On Money Market Funds

President's Working Group Releases Report on Money Market Funds
October 25, 2010 
FEI Summary

The President’s Working Group (PWG) on Financial Markets released a report in response to the U.S. Securities and Exchange Commission’s new rules on money market funds (MMF) regulation that are meant to mitigate MMF risks and susceptibility to runs. The events of September 2008 highlighted the need for such regulations due to the severe dislocation of short-term credit markets and strains on the businesses and institutions that obtained funding in those markets.

President Barack Obama and the U.S. Treasury Department tasked PWG, because the SEC amendments alone could not be expected to prevent future runs completely. Additionally, the report acknowledged current statutory authority under the SEC could be used to implement these options, but other suggestions may need new legislation.

Among the main reform options suggested in the report are:

·         Implementing Floating Net Asset Values (NAVs) in Place of Stable NAVs;

·         Private Emergency Liquidity Facilities for MMFs;

·         Mandatory Redemptions in Kind;

·         Insurance for MMFs;

·         A Two-Tiered System for MMFs, with Enhanced Protections for Stable NAV MMFs;

·         A Two-Tiered System of MMFs, with Stable NAV MMFs Reserved for Retail Investors;

·         Regulating Stable NAVs as Special Purpose Banks; and

·         Enhanced Constraints on Unregulated MMF Substitutes.

Overall, PWG did not lean one way or the other on each topic above, but highlighted the advantages and obstacles these suggestions would create if implemented. Moreover, PWG’s suggestions have no legal weight, and these suggestions will have to be further reviewed by the Financial Stability Oversight Council, the Treasury Department and the SEC.

FEI will be monitoring this closely, as NAVs — particularly stable NAVs — are critical to businesses in order have increased access to credit. In July, FEI’s Committee on Corporate Treasury signed onto a letter to Treasury Secretary Timothy Geithner and SEC Chairman Mary L. Schapiro concerning MMFs being forced to abandon their stable per-share value, an idea under consideration by PWG.

If you have comments or suggestions on the attached document, please contact Matt Miller, FEI’s vice president, Government Affairs, at mmiller@financialexecutives.org or 202-626-7804.

Prepared Oct. 25, 2010 by Tyler Roberts (troberts@financialexecutives.org), policy analyst, Government Affairs, and Katy Williams (kwilliams@financialexecutives.org), legislative aide, Financial Executives International. This summary does not represent FEI opinion unless specifically noted above.