U.S. Advances Go-It-Alone, Structural MMF Reform
Late yesterday, the President’s Working Group on Financial Markets (PWG) issued an unusual report signaling agreement by Treasury and the FRB, SEC, and CFTC on the urgent need for changes in the MMF sector to prevent systemic “dash-for-cash” events such as the most recent March crisis. While outgoing statements from Treasury, the SEC, and CFTC, the PWG report nonetheless establishes a strong platform for rapid U.S. action even as the FSB continues work on its “holistic” agenda (see FSM Report NBFI). Although some asset managers expected the SEC to continue to balk at structural MMF change, it concurs not only with the PWG’s assessment of imminent systemic risk in the absence of change, but also with the conclusion that risk is so acute that it may warrant a smaller prime/tax-exempt sector and any resulting short-term funding challenges for foreign banks. As we have noted (see Client Report REFORM200), the Fed is also deeply concerned with FBO reliance on short-term wholesale funding.
