Fed Officials Signal Tighter Rules on Bank-Sponsored Money Funds

By Steven Sloan

Federal Reserve officials spoke out twice in the past month to send a signal to money-market funds resisting tighter U.S. regulation. The message: New rules are coming, one way or another. The officials — Governor Daniel Tarullo and Bank of Boston President Eric Rosengren — said the Fed could take steps to limit banks’ reliance on money funds as a source of short-term cash. The U.S. Securities and Exchange Commission has been deadlocked for months over proposed rules that would require the $2.5 trillion money-fund sector to float share prices or hold more capital, measures that could make funds less attractive to investors. The comments were “an effort to tell the industry to work with the SEC because, ‘If they don’t get you, we can,’” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington research firm.