BOSTON (Reuters) - Federated Investors Inc Chief Executive Christopher Donahue, who has fought increased regulation of money market funds, said on Friday he would support a limited reform proposal.
Donahue, whose Pittsburgh-based firm is one of the largest sponsors of money funds, said in an interview that he would back allowing funds to limit customer withdrawals in times of stress, a practice the industry calls “voluntary gates.”
“That would work,” he said. “It would be enhancing the resilience of the funds.”
Forcing funds to adopt other reforms such as a floating net asset value would still be unacceptable, however, he said.
Donahue’s comments come as federal regulators this week renewed their efforts to strengthen regulation of the $2.5 trillion money fund industry following the financial crisis, when dozens came under stress amid rapid withdrawals.
The revived talk of regulation hit Federated’s share price, which dropped 5.4 percent this week, more than double the decline of competitors like BlackRock and Franklin Resources.
One member of the U.S. Securities and Exchange Commission, Daniel Gallagher, who had opposed a prior reform effort in August, said on Friday he hoped his agency would consider a fresh approach, even as the new U.S. risk council is exploring ways to also tighten regulations on the industry. Gallagher’s openness to an alternative proposal may greatly increase the chances for new rules.
SEC Chairman Mary Schapiro and others have called for reforms that include requiring the funds to hold capital against potential future losses or move away from the traditional $1 per share fixed net asset value.
The changes proposed by Schapiro, a Democrat, faced strong industry opposition from Federated and other firms. Ultimately, Schapiro could not garner enough support from Gallagher and fellow Republican Commissioner Troy Paredes and Democrat Luis Aguilar last month.
Gallagher and Paredes have described optional withdrawal limits like those favored by Donahue as a way that money fund boards could avoid rapid and destabilizing withdrawals. Under a 2010 rule change, such limits could only be imposed if the fund was closed and put into liquidation.
Donahue said his firm has backed “voluntary gates” in the past, and that the device helped preserve capital at a $12 billion fund run by Putnam Investments before it was taken over by Federated at the peak of the crisis.
Editing by Leslie Gevirtz