July 21, 2011 / 6:32 PM / 8 years ago

Floating money funds rate under discussion: Schapiro

WASHINGTON (Reuters) - Regulators are discussing whether to abandon the $1-per-share standard value long used by money market funds, Securities and Exchange Commission Chairman Mary Schapiro said on Thursday.

Regulators have been tightening oversight of banks and brokerages after the collapse of Lehman Brothers in September 2008 forced the government to backstop the industry.

Lehman’s failure pushed the value of the Reserve Fund money market fund below $1 a share, wreaking havoc.

Schapiro said that doing away with the $1 standard and allowing net asset values (NAV) to “float” is one of several issues under discussion.

“I would say nothing has been decided,” Schapiro told the Senate Banking Committee at a hearing on the one-year anniversary of the Dodd-Frank financial oversight law.

The $1-per-share price is a cornerstone of money market funds. The practice has engendered the perception that money funds are only slightly riskier than bank accounts guaranteed by the government.

Supporters of the floating NAV concept have said changes in a fund’s share price helps gauge its riskiness.

The industry largely opposes the idea of a fluctuating NAV as expensive and unwanted by investors.

Some market analysts have raised concerns in recent weeks about money market funds’ exposure to European banks amid anxiety that a smaller euro zone country could default on its debt.

Schapiro disputed that notion, in an interview following the hearing.

“We know that there’s little or no direct money market fund exposure to the peripherals,” she said. “But there is significant exposure to European banks, which may in turn be exposed to the peripheral countries, so it is something we are all watching very closely.”

Editing by Padraic Cassidy

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