On Tuesday, the SEC and FSOC focused on whether to regulate money-market funds (MMFs) for systemic risk, building on a report urging this from the President’s Working Group on Financial Markets (see Client Report MMF2). Although MMF advocates countered assertions about systemic risk on grounds that this can be addressed with sound liquidity-risk management, former FRB Chairman Volcker and FDIC Chair Bair pushed hard for new standards on grounds that MMFs are “shadow” banks. Ms. Bair further argued that stable net-asset values (NAVs) result only from an implicit guarantee. Reflecting bank-regulatory fears sparked by the EU debt crisis, the Bank of England’s Paul Tucker also pushed for governing MMFs like banks. Client Report MMF3 assesses the roundtable, noting the tough questioning taken by MMF advocates and institutional investors speaking on their behalf.
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