FSOC Approves Three MMMF Reform Recommendations
At today’s open meeting, the Financial Stability Oversight Council (FSOC) unanimously approved for public comment three recommendations to reform money market mutual funds (MMMF). The approved recommendations were outlined in Treasury Secretary Geithner’s September 27 letter to FSOC members. The Council also approved the minutes from October 18, 29, and 30th meetings.
The three recommendations are:
1. Require a floating Net Asset Value (NAV);
2. Require an MMMF capital buffer of up to 1 percent of the funds value combined with requirements that only a small percentage of shareholder funds can be redeemed in a short period of time;
3. Require MMMF to maintain a capital buffer set at 3 percent to absorb losses, combined with a set of other measures that could reduce the size of the buffer if deemed “sufficiently strong” to complement the buffer.
Treasury Secretary Timothy Geithner said it is the view of the Council that the 2010 reforms for money market mutual funds “did not go far enough.” Geithner called the recommendations a “thoughtful set of options.” In addition, Gensler said that if at any point the Securities and Exchange Commission (SEC) finds a majority in support of MMMF reform, “then we would suspend the work of the Council, and let the process play out.” Geithner also stated that the preferred course would be for the SEC “to take this back, and propose its own set of options for moving forward.” If the SEC does not take any action, Geithner indicated that the Council would look at other options “available to us… through the designation process, for example, or within the authority of other agencies,” such as the Federal Reserve, “that would give us alternative ways of trying to protect the financial system of the U.S. from the risks and vulnerabilities that still remain in money market funds.”
SEC Chairman Mary Schapiro called the recommendations “meaningful structural reform options.” Of the three recommendations, Schapiro said the floating NAV recommendation is the “simplest option, and the option that is most consistent with the SEC’s regulatory approach to investment products.” Adding further, Schapiro stated that the SEC “is best positioned to implement” the reforms. Schapiro then said that if the SEC moves forward with MMMF reform, “that the Council would not issue a final money market fund reform recommendation to the commission.”
Federal Reserve Chairman Ben Bernanke said the 2010 reforms did not address the fixed NAV issue, which “still maintains the incentive for first movers, for the rapid withdrawers to come and propagate a run even in a case where losses have not yet been revealed.”
Commodity Futures Trading Commission Chairman Gary Gensler issued a more cautious statement saying that “some of the alternatives may significantly change the product that so many Americans rely upon.” While the 2010 SEC reforms were “important steps,” Gensler said there “still remains the possibility… for some investors to run.”
For a link to the proposed recommendations, click here.
At today’s open meeting, the Financial Stability Oversight Council (FSOC) unanimously approved for public comment three recommendations to reform money market mutual funds (MMMF). The approved recommendations were outlined in Treasury Secretary Geithner’s September 27 letter to FSOC members. The Council also approved the minutes from October 18, 29, and 30th meetings.
The three recommendations are:
1. Require a floating Net Asset Value (NAV);
2. Require an MMMF capital buffer of up to 1 percent of the funds value combined with requirements that only a small percentage of shareholder funds can be redeemed in a short period of time;
3. Require MMMF to maintain a capital buffer set at 3 percent to absorb losses, combined with a set of other measures that could reduce the size of the buffer if deemed “sufficiently strong” to complement the buffer.
Treasury Secretary Timothy Geithner said it is the view of the Council that the 2010 reforms for money market mutual funds “did not go far enough.” Geithner called the recommendations a “thoughtful set of options.” In addition, Gensler said that if at any point the Securities and Exchange Commission (SEC) finds a majority in support of MMMF reform, “then we would suspend the work of the Council, and let the process play out.” Geithner also stated that the preferred course would be for the SEC “to take this back, and propose its own set of options for moving forward.” If the SEC does not take any action, Geithner indicated that the Council would look at other options “available to us… through the designation process, for example, or within the authority of other agencies,” such as the Federal Reserve, “that would give us alternative ways of trying to protect the financial system of the U.S. from the risks and vulnerabilities that still remain in money market funds.”
SEC Chairman Mary Schapiro called the recommendations “meaningful structural reform options.” Of the three recommendations, Schapiro said the floating NAV recommendation is the “simplest option, and the option that is most consistent with the SEC’s regulatory approach to investment products.” Adding further, Schapiro stated that the SEC “is best positioned to implement” the reforms. Schapiro then said that if the SEC moves forward with MMMF reform, “that the Council would not issue a final money market fund reform recommendation to the commission.”
Federal Reserve Chairman Ben Bernanke said the 2010 reforms did not address the fixed NAV issue, which “still maintains the incentive for first movers, for the rapid withdrawers to come and propagate a run even in a case where losses have not yet been revealed.”
Commodity Futures Trading Commission Chairman Gary Gensler issued a more cautious statement saying that “some of the alternatives may significantly change the product that so many Americans rely upon.” While the 2010 SEC reforms were “important steps,” Gensler said there “still remains the possibility… for some investors to run.”
For a link to the proposed recommendations, click here.