Statement by the Systemic Risk Council (SRC) on Money Market Fund Reform
Sheila Bair, former chair of the FDIC and current chair of the Systemic Risk Council (SRC) issued the following statement on the Council's behalf:
We were deeply disappointed to learn that three SEC Commissioners have refused to publish for public comment a proposed rule to reduce the systemic risk posed by money market funds. Given the size and scope of this risk we believe the Financial Stability Oversight Council (FSOC) – and its members – should use their individual and collective authorities to address this risk before another potentially destabilizing run.
On July 19, 2012 the Systemic Risk Council called for prompt and decisive action to curb systemic risks posed by money market mutual funds. When the Reserve Primary Fund "broke the buck" in 2008, extraordinary actions were required of governments worldwide to back-stop and calm investors in the money market fund (MMF) industry. The risk that emergency government support may again be needed to stem large outflows from money market funds remains a serious challenge for U.S. and other markets. The Council believes such circumstances have been allowed to linger for too long and strongly supports proposals recommended by SEC Chairman Mary Schapiro.
At that time, the Council also noted that "In the event the SEC fails to act promptly on these measures, we believe that the FSOC should use its powers under the Dodd-Frank law to move forward with reforms to protect taxpayers against the risk of a need for bailouts in the future."
"We applaud Chairman Schapiro for her leadership on this important issue, and we regret the unwillingness of a majority of the Commission to seek public comment on this vital reform. Given the current impasse at the SEC, we believe the FSOC should use the full range of authorities given it under Dodd-Frank to effectuate needed reforms. These authorities include using Section 120 to formally recommend that the SEC move forward on Chairman Schapiro's recommendations, and using Title 8 to designate certain money market mutual fund "activities" as "systemically important" – and requiring that the SEC impose heightened risk management standards as the FSOC determines necessary to address the risk. Clearly the SEC is best positioned to address this issue most efficiently, but, if the Commission continues to be unwilling to take the necessary action, FSOC must step in."
* The independent, non-partisan Systemic Risk Council was formed by CFA Institute and the Pew Charitable Trusts to monitor and encourage regulatory reform of U.S. capital markets focused on systemic risk. The statements, documents and recommendations of the private sector, volunteer Council do not necessarily represent the views of the supporting organizations.
The Council works collaboratively to seek agreement on all recommendations. This report fairly reflects the consensus views of the Council, but does not bind individual members.