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Financial Stability Council Is Unimpressed By Money Market Funds’ Contribution To Financial StabilityBy Matt Levine
One day somebody will write the history of arguments of the form “we should be allowed to trick people, it’s for their own good.” It sounds like a terrible argument doesn’t it? And yet. There are real points to be made against mark-to-market accounting at banks. And this Investment Company Institute paper from July arguing against floating share prices for money market funds is also sort of persuasive.1 Oh sure, telling investors that every dollar they invested in a money market fund is worth $1.00, even if it’s actually worth $0.997 or whatever, is not true. And sure letting them redeem $0.997 worth of stuff for $1.00 creates all sorts of run-on-the-bank stability problems. But it lets investors treat money market funds as cash! And think of the tax consequences and administrative headaches of a floating share price!
But those arguments are mostly losing. Re: money market funds, a while back Mary Schapiro at the SEC tried to impose rules roughly in the form of “either tell people what their shares are worth or have a capital buffer to make sure they’re worth $1.0000”; she failed to get enough votes, and now the super-SEC that is the Financial Stability Oversight Council have said “you should try that again”2:
The Financial Stability Oversight Council, a board of top U.S. regulators established by the Dodd-Frank financial overhaul, approved several recommendations to overhaul money-market funds in an open meeting Tuesday. The aim of the council’s push is to prevent runs on money-market funds during a financial crisis, as happened in 2008 when Lehman Brothers Holdings Inc. filed for bankruptcy protection.
Treasury Secretary Timothy Geithner, who is chairman of the FSOC, said at Tuesday’s meeting that he hopes the proposal will generate public comment and ultimately put pressure on the SEC to “take this back and propose on its own a set of options” for money-market overhauls.