* Fund companies have moved to post daily net asset values
* Status quo still not acceptable, Rosengren says
By Jonathan Spicer
NEW YORK, Feb 12 Moves by fund companies to post
daily net asset values, while positive, will not alone protect
investors from crisis-era panics in the troubled money markets,
Federal Reserve Bank of Boston President Eric Rosengren said on
Rosengren, an outspoken regulator in the debate over what to
do about money market mutual funds, said in an interview that
"the status quo really is unacceptable." He added that the
problem will not be solved "purely by disclosure."
Instead, Rosengren highlighted a letter in which he and the
presidents of the other 11 regional Fed banks called for more
aggressive steps to reform the $2.6-trillion industry.
Money market funds threatened to freeze global markets in
the financial crisis, capped by investors' rush to flee the
well-known Reserve Primary Fund in the fall of 2008 because of
its heavy holdings in collapsed Lehman Brothers. The fund was
unable to maintain its $1 per-share value, known as "breaking
While the debate over what to do to safeguard the market has
drawn on, fund managers such as Fidelity Investments, Federated
Investors Inc and Charles Schwab Corp have
begun posting daily fund asset values.
"Posting the daily net asset values I think is positive and
I would encourage the industry to continue to think about ways
where disclosure could be helpful," said Rosengren, whose Fed
district is home to many of the fund companies.
"There are more disclosures that could still occur,
including providing daily or weekly positions, for example," he
added. "But that disclosure alone doesn't solve the issues,
particularly with the potential with runs on money market
In their letter to the main U.S. risk council, dated
Tuesday, the presidents of all 12 regional Fed banks said they
backed a number of tougher reforms currently being considered by
federal regulators. Fund companies could be allowed to offer
different protections for different funds, they said.
But the Fed presidents poured cold water on an
industry-backed idea to stabilize the market.
Simply implementing temporary withdrawal restrictions on the
funds, known as "standby liquidity fees" and "temporary
redemption gates," fall short of what is needed, the Fed
officials told the Financial Stability Oversight Council, or
Last month the Investment Company Institute, the asset
management industry's main trade group, outlined just such a
limited plan and offered few compromises.
On Tuesday, ICI repeated that a temporary redemption gate
and liquidity fee for prime money market funds "is the only
proposal under discussion that would stop redemptions during
extreme market stress."
"The FSOC's other proposals would not accomplish regulators'
stated goals and would harm investors and the economy," the
ICI's Ianthe Zabel said in an email.
The fund companies have argued that the posting of daily
asset values is meant to show investors that money funds are
stable because the share values vary by only miniscule amounts
from day to day.
Goldman Sachs Group Inc, JPMorgan Chase & Co
and BlackRock Inc, which oversee $489 billion, or 20
percent, of U.S. money market funds, have also taken such
Last summer, a sweeping rule proposal by the Securities and
Exchange Commission was blocked. Since then the industry and the
FSOC, which includes officials from the Fed Board in Washington,
have been locked in debate over what changes to make.
The suggestions in the letter, released by Rosengren and
signed by all 12 Fed bank presidents, were similar to those made
by the FSOC.
While investors in one fund could be protected by a floating
net asset value, investors in another could be protected by a
stable NAV with a capital buffer, the Fed officials said.
"I don't think this is going to be solved purely by
disclosure, and I think that's what this letter highlights,"