NEW YORK, Sept 27 A top Federal Reserve official
on Friday took a swipe at a fellow U.S. regulator's proposal to
rein in money market mutual funds, saying a key part of the
Securities and Exchange Commission's plan is a step backward and
should be ditched.
Eric Rosengren, president of the Boston Fed branch who has
long called for reform in the $2.5-trillion industry, took aim
at one of the SEC's two-part plan to protect investors in times
of stress like the 2008 financial crisis.
In the fall of that year, money funds threatened to freeze
global markets as investors rushed to flee the well-known
Reserve Primary Fund because of its heavy holdings of collapsed
investment bank Lehman Brothers. The fund was unable to maintain
its $1-per-share value, a situation known as "breaking the
Rosengren said reform was overdue, but that what was needed
are reforms that actually reduce the financial stability issues
that remain today.
"The SEC proposal to allow funds to impose liquidity fees
and redemption gates should be dropped," he said according to
prepared remarks to a workshop on stable funding hosted by the
New York Fed.
"This particular proposal is, in my view, worse than the
status quo. It would only increase the risk of financial
instability," he was to tell the bankers, academics and
government regulators in attendance.
The speech took an even harder stance than a letter the
Fed's 12 regional banks sent to the SEC earlier this month, in
which they criticized the SEC's plan as doing little to change
The measure, part of a series of proposed SEC changes to the
industry, would let funds ban withdrawals or charge fees for
them in times of stress. Fed officials worry that would only
accelerate runs in times of panic.
"These alterations would likely increase the incentive to
run from a MMMF," Rosengren said. "But in addition, they
increase the risk of 'contagious' runs" in which investors also
flee funds that are not in trouble.
He backed a parallel SEC proposal to require funds to adopt
a floating net asset value, or NAVY, but urged the regulator to
expand it beyond only institutional funds to include retail
Industry players have resisted changes of any kind,
particularly the floating NAVY.
While the SEC is tasked with protecting investors and
ensuring fair markets, the U.S. central bank's regulatory goal
is ensuring overall financial-market stability.