Sheila Bair urges prompt reforms for money market funds

Publication: Reuters

Author: Alexandra Alper

07/20/2012 - If the Securities and Exchange Commission does not beef up its oversight of money market funds, a council of regulators should take the reins, former U.S. bank regulator Sheila Bair said on Thursday.

Bair, who formerly chaired the Federal Deposit Insurance Corp, applauded the reforms that SEC Chairman Mary Schapiro has floated to bolster the funds, four years after a fund "broke the buck," letting its shares tumble before a dollar a piece and rattling markets.

But Bair, in a letter to regulators, said that if Schapiro cannot get the votes needed to push the rules through, the Financial Stability Oversight Council should step in.

"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," Bair wrote, as chair of the Systemic Risk Council, a private group that monitors reform.

"If the SEC fails to move forward, we believe the FSOC should use the full range of authorities given it under Dodd-Frank to effectuate the proposed reforms."

The letter comes a day after the FSOC - which was set up to monitor risks in the financial system - issued its second annual report on financial headwinds, citing money market funds as a major concern.

"We need to put in place additional reforms for money market funds," Treasury Secretary Tim Geithner, who chairs the council, said at a meeting where the report was presented.

One of the plans under consideration would combine a capital buffer coupled with a holdback on redemption requests by investors. The other would feature a floating net asset value - a move that aims to curb investor complacency over the stable $1-per-share value that funds currently quote.

But the new safeguards are strongly opposed by the $2.7 trillion money market fund industry and the U.S. Chamber of Commerce. Three of the SEC's five commissioners have also publicly expressed skepticism about the need for money market reforms beyond the ones adopted in 2010.

"These are the wrong reforms at the wrong time," Tom Quaadman, a vice president at the Chamber of Commerce's Center for Capital Markets Competitiveness, noting that many companies rely on money market funds for capital.

The funds own more than 40 percent of U.S. dollar-denominated financial commercial paper outstanding, according to the New York Fed.


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