* Tighter capital requirements could favor banks over mutual
* Black Rock strikes conciliatory stance with regulators
* SEC still struggling to advance tougher rules
By Tim McLaughlin and Ross Kerber
Nov 14 BNY Mellon Corp's investment management
chief on Wednesday said he saw "some merit" to stiffer capital
requirements and other rules for money funds proposed by U.S.
regulators, in comments that exposed a schism in the $2.5
BNY Mellon investment chief Curtis Arledge's positive
remarks offer a sharp contrast to an industry that has widely
panned the reforms proposed by U.S. regulators.
On Tuesday, leading members of the industry, including top
money fund manager Fidelity Investments, criticized proposals by
the Financial Stability Oversight Council, a board of top
regulators chaired by Treasury Secretary Timothy Geithner.
But Arledge, who oversees BNY's $322 billion cash management
business, expressed support for ideas like requiring riskier and
less diversified funds to have a bigger capital buffer than
"I'm not saying I would do it exactly the way it was in the
(FSOC) proposal, although I think there is some merit to it,"
Arledge said at the Bank of America Merrill Lynch investor
conference in New York.
"We do actually hold economic capital against our money
funds," Arledge said. "So we are actually very well positioned
for the world to shift to where sponsors need to recognize they
have exposures. Not everybody does, so we think we're well
positioned if that changed."
Regulators and fund companies have been at odds for years
over whether the money fund industry needs more oversight coming
out of the financial crisis. In 2008 one of the industry's
best-known funds "broke the buck" and reported a net asset value
below $1 per share, dragged down by its heavy holdings in the
collapsed Lehman Brothers. Federal agencies eventually provided
industry-wide backstops and in 2010 new rules required the funds
to become more transparent and liquid.
But in August, Securities and Exchange Commission Chairman
Mary Schapiro failed to win a majority of support from the SEC's
five-member commission to move forward with additional changes
she says are needed to make the funds more robust. That sent the
matter to the FSOC. Many fund firms and their allies, however,
have argued the 2010 reforms were sufficient and that some
additional rules - like a proposed shift away from the funds'
traditional $1-per-share value - would drive away investors.
David Scharfstein, a Harvard Business School professor who
has backed some money fund reforms, said Arledge's comments
seemed in line with the differing priorities among fund
He said free-standing fund companies such as Fidelity,
Vanguard Group and Federated Investors Inc - among the
largest sponsors of money funds - might have a harder time with
capital requirements than money funds sponsors who are banks,
which already have capital.
Lance Pan, director of investment research for Capital
Advisors Group, which works with institutional investors, said
also that firms such as Fidelity and Federated have few other
places to hold the cash of investors exiting money funds.
Banks like BNY Mellon and JPMorgan Chase & Co,
meanwhile, can offer more products for customers who might leave
money funds if they don't like new rules, Pan said.
Arledge put a finer point on the differences.
"If you personally had a choice, would you rather have your
sponsor be the safest bank in the largest economy in the world,
or an independent investment firm?" he said. "We're a winner in
the scenario where risk is actually factored in to making money
funds more resilient."
In addition, BlackRock Inc, which has been among the
most vocal proponents of finding a compromise, is again engaged
with regulators over the latest ideas, president Rob Kapito said
on Wednesday. The New York-based firm will comment on the pros
and cons of all three proposals issued by the FSOC, Kapito said
while speaking at an investor conference.
Though Kapito did not give any specific views on the FSOC's
preliminary plan, he said it was a "good starting place."
"I'm an optimist in this regard," he said, but added "this
is going to be a tough process."