Following the financial crisis in 2008, the Treasury Department directed the President's Working Group on Financial Makets (PWG) to assess options for mitigating the systemic risk associated with money market funds and reducing their susceptibility to runs. Last week, the PWG issued a report detailing the results of the group's study, and discussing a list of proposals for additional reforms.
This report lays out in detail a number of options for money market fund reforms, ranging from measures that could be implemented by the SEC under its current statutory authority, to more sweeping changes that would require coordination by government agencies, legislative change, and/or the creation of new government chartered private entities:
- Floating net asset values
- Private emergency liquidity facilities for MMFs
- Mandatory redemptions in kind
- Insurance for MMFs
- A two-tier system of MMFs with enhanced protection for stable NAV funds
- A two-tier system of MMFs with stable NAV MMFs reserved for retail investors
- Regulating stable NAV MMFs as special purpose banks
- Enhanced constraints on unregulated MMF substitutes
In addition to the reform options, the PWG's report supports the SEC's recent rule amendments governing money market funds, and urges the SEC to consider some or all of the group's suggestions to to address money funds' vulnerability to runs. The report also calls for new constraints on less regulated money market fund substitutes, or money market vehicles currently exempt from regulation.
These suggested policy options are intended for the Financial Stability Oversight Council, established by the Dodd-Frank Act, to consider and pursue appropriate next steps. To assist the Financial Stability Oversight Council, the SEC has announced that it will solicit public comments on these regulatory alternatives. An SEC concept release on the topic will be published in upcoming months.
The full text of the PWG's money market reform report is available at: http://www.treas.gov/cgi-bin/redirect.cgi?http://treas.gov/press/releases/docs/10.21%20PWG%20Report%20Final.pdf