All 12 of the Federal Reserve’s regional banks are in favor of tougher oversight of money market mutual funds, encouraging the funds to abandon the $1 net asset value and allow values to be set by the market.
The regional bank chiefs stated in a letter to the Financial Stability Oversight Council (the Council) that they are primarily targeting prime funds that carry the greatest risk because they can buy corporate debt.
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The conduct, nature, size, scale, concentration, and interconnectedness of money market funds’ activities and practices have the potential to increase the risk of significant liquidity and credit problems among bank holding companies and the financial markets.
Fund companies successfully defeated then SEC head Mary Schapiro’s efforts to bring money market funds under closer regulatory scrutiny.
The Council is pressuring the SEC to reconsider its recommended changes. The Council is a risk-monitoring panel that includes the heads of both the Federal Reserve and the Treasury Department.
Three of the largest five money market funds say it is impossible to stop the new regulatory efforts a second time and instead are trying to limit the scope of the changes.
Fidelity Investments, Vanguard Group Inc., and Charles Schwab Corp. are pushing to exempt retail-oriented funds and focus on institutional funds
that can buy the corporate debt and introduce greater risk.