SEC Commissioner Daniel Gallagher has turned an about face, saying he would support an effort to enforce fluctuating money fund prices. Gallagher was one of the commissioners to derail the SEC’s money fund reform process.
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He was originally against SEC chief Mary Schapiro’s requirement that funds increase their capital reserves.
He felt the level of capital required would be insufficient and, instead, would serve as collateral in case the need arose to borrow funds from the Federal Reserve.
Gallagher said that would actually encourage bailouts rather than eliminate them as the rule intended.
The Financial Stability Oversight Committee (FSOC), led by US Treasury Secretary Timothy Geithner is scheduled to meet on September 28 and may include fund talk in their discussions.
The SEC, the Federal Reserve, and the Treasury Department have all emphasized the need to make money funds safer since the 2008 crisis that collapsed the $62.5 billion Reserve Primary Fund. An industry-wide run ensued and credit markets became frozen.
Geithner agrees forcing funds to let go of the $1 value per share is key to fixing the problem and should be explored more in depth as a possible solution.
Schapiro’s plan included floating the share value but placed that as a secondary priority to increasing capital reserves.
Gallagher said the original SEC proposal was more about the role money market funds
play in the short term funding markets for banks and was never really focused on investor safety.