WASHINGTON Feb 21 A bipartisan group of former
top officials of the Securities and Exchange Commission are
urging the U.S. financial risk council to back down from its
efforts to pressure the SEC into adopting new rules for the $2.6
trillion money market fund industry.
In a Feb. 20 letter to the Financial Stability Oversight
Council (FSCO), four former SEC chairman, five former
commissioners and six former senior staffers urged the panel to
"respect the jurisdiction, independence, subject-matter
expertise and regulatory processes" of the agency.
"We believe strongly that there are compelling reasons the
council should forbear from intervening in the SEC's rulemaking
process," the ex-SEC officials wrote.
"This conclusion is based upon the superiority of the SEC to
the council as an expert, bipartisan regulator and the long-term
corrosive effect on the SEC of disregarding determinations by a
majority of the commission's members."
The signatories included former SEC Chairmen Roderick Hills,
David Ruder, Richard Breeden and Harvey Pitt, as well as former
commissioners Roel Campos and Paul Atkins, among others.
The former officials did not take a unified position on the
substance of the proposed reforms, saying they have varying
A Treasury spokeswoman declined to comment on the letter.
The letter comes as the risk council continues to review
public comments it has received on a proposed regulatory
framework to help prevent runs on money market funds.
Chaired by the Treasury secretary and comprised of the
country's top banking and market regulators, the FSOC waded into
the money market fund debate last year after former SEC Chairman
Mary Schapiro could not win enough support for reforms from her
She argued that more reforms are necessary to repeat a run
on funds like that seen in the 2008 financial crisis. During the
crisis, heavy exposure to collapsed investment bank Lehman
Brothers caused the net asset value of the Reserve Primary Fund
to fall below $1 per share, something known as "breaking the
buck." It caused a damaging ripple effect in the markets.
Among the proposals Schapiro wanted to consider were capital
buffers and redemption holdbacks, or a move from a stable to a
floating net asset value so that investors would not be spooked
by the prospect of funds breaking the buck.
But she faced skepticism by three of her fellow
commissioners, who wanted more study of 2010 money fund reforms
before tacking on new regulations.
The industry also fiercely pushed back, saying the measures
she was seeking could effectively kill demand for the product.
The FSOC was created by the 2010 Dodd-Frank Wall Street
reform law that aims to police for potential systemic threats to
the marketplace. The law gives it the authority to try and
pressure regulators to act, though the FSOC cannot force the SEC
to follow its recommendations.
If the SEC does not act on its own, the FSOC may formally
present the SEC with its recommended reforms. The SEC would need
to accept or reject them in writing within 90 days.
Since Schapiro stepped down in December, the SEC's
economists completed a study on money funds, and the agency's
remaining four commissioners are busy reviewing an early-stage
document outlining potential courses of action.
Meanwhile, the FSOC is still charging ahead with its
proposal, which largely mirrors Schapiro's.
So far, it has faced some criticism from asset managers
including Fidelity Investments, Vanguard and Blackrock,
as well as business groups like the U.S. Chamber of Commerce.
In various comment letters, the industry has urged the SEC
and FSOC to support alternative measures including "liquidity
fees" that could be imposed on withdrawals from prime money
market funds or "redemption gates" that would prohibit
Late last week, an anti-Wall Street group known as "Occupy
the SEC" called for yet another idea: allowing fund managers to
offer a combination of both floating and buffered net asset
"The two alternatives together are better than either one as
each has relative advantages," Occupy SEC wrote. "Offering the
choice of both alternatives to fund sponsors - and ultimately to
investors - ameliorates the flaws in either alternative in
Sheila Bair, the former chairman of the Federal Deposit
Insurance Corp and a supporter of tougher new money fund
reforms, told Reuters on Thursday she thinks a floating NAV is
the best approach at this point.
"The gates can exacerbate runs if people move out before the
gates go down, and that generally hurts the retail people," she
Bair added she had not yet read the letter from the former
SEC officials, but said she didn't agree with the premise.
"We seem to want to protect agencies' independence when
they're being weak and not being strong," she said. "The SEC
should be the lead on this...but they need to get the reforms in