A former Federal Reserve attorney, Melanie Fein, has written a letter to Boston Fed chief Eric Rosengren sharply contesting the points he made in a speech in April.
Mr. Rosengren's remarks expressed his belief that money market funds pose enough of a risk "to the stability of the financial system that underpins the economy" that reforms are necessary. Ms. Fein's letter challenges the depth of the economic analysis supporting the Boston Fed chief's speech.
She makes a number of points in her letter, including the fact that Rule 2a-7 substantially limits the amount of risk that money market funds can incur. Citing the 2010 President's Working Group report on money market funds for support, she notes that eliminating all risks posed by money market funds is not an appropriate policy goal to eliminate all risks posed by money market funds.
Her letter concludes by saying that:
I firmly believe, however, that it is unnecessary and potentially dangerous for the Fed to become involved in regulating an industry with which it has little regulatory experience or expertise, especially one that is well-regulated by another independent federal agency and that historically has operated with little risk to investors or the financial system. The Federal Reserve obviously has a systemic oversight role as a member of FSOC, but in the case of MMFs, that role should not be one that encourages additional regulation where none is needed and which could prove deleterious to the functioning of the financial markets and investors who rely on MMFs.
The letter can be found here: http://www.sec.gov/comments/4-619/4619-165.pdf
The Forum's post on the Eric Rosengren speech is here: http://www.mfdf.org/director_resources/resource/boston_fed_on_money_market_reforms/
The October 2012 President's Working Group report on Money Market Reform Options is here: http://www.treasury.gov/press-center/press-releases/Documents/10.21%20PWG%20Report%20Final.pdf