In a recent Wall Street Journal op-ed, SEC Chairman Mary Schapiro called on the Financial Stability Oversight Council (FSOC) and other “individual regulators” to “reduce [the] systemic risk” posed by money market funds. The “individual regulators” referred to in the column is likely a reference to the Federal Reserve Board that has jurisdiction over bank sponsors of money funds. Chairman Schapiro has previously indicated that she would like other regulators to take action in this area, but this op-ed is her most explicit statement to date:
“At this point, the Financial Stability Oversight Council is the right organization to tackle [the money market fund] issue. Under the 2010 financial-reform legislation, Congress created this council to serve as a cross-regulatory body tasked with identifying risks to financial stability and promoting market discipline.
The council already has signaled its support for action on money-market funds. In each of its two annual reports, the council identified the susceptibility of these funds to runs as a risk to financial stability and encouraged the pursuit of reform.
Now the council must consider what actions it can take to reduce this systemic risk. The options include, among others, the possibility of a formal recommendation to the SEC to apply new or heightened standards to money-market funds. The SEC would then be required to apply those standards—or within 90 days explain in writing the justification for not applying them. In addition, the council has the ability to designate certain entities as systemically significant and subject them to prudential regulation by the Federal Reserve Board.
Individual regulators also can examine the sponsorship and reliance on money-market funds by the entities overseen by the regulators, who would be able to consider whether additional limitations or controls are necessary.”
The full op-ed is available here (registration required).