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April 30, 2021

Money Market Funds Have to Be Reformed

Better Markets filed a comment letter earlier this month in response to the SEC’s request for input on 10 possible reforms that the President’s Working Group laid out last December for recently bailed out money market funds (MMFs).
Why this matters? Finishing the job of regulating MMFs is long overdue and vitally needed to avoid another taxpayer rescue similar to the ones in 2008 (following the collapse of Lehman Brothers) and 2020 (due to the financial turmoil brought on by COVID-19).
What we said. In our comment letter, we encouraged the SEC to apply the 10 possible reforms in combination. We noted that above all, the SEC must float the net asset value (“NAV”) for all MMFs and establish a significant capital buffer requirement. Plus, the agency must reject the inevitable “sky-will-fall” objections from the industry, which are meritless.
We also wrote that if the SEC refuses to adopt the long-overdue necessary reforms, then the basic approach to MMFs regulation should change and MMFs should be subjected to a bank-like regime. Above all, the SEC must move beyond the piecemeal approaches it adopted in 2010 and 2014, which were inadequate and still resulted in MMFs failures in 2020 requiring taxpayers to once again bail out the industry.
Bottom line: MMFs continue to pose a serious threat to the stability of the financial system. The SEC’s request for comment is an encouraging sign that the Commission will soon embark on a rulemaking that could finally accomplish that goal.
Read our statement


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