Publication: New York Times

Author: Floyd Norris

9/19/2013 —Bank regulators around the world are forcing banks to hold more capital than they did before the financial crisis revealed just how inadequate their capital truly was. But one set of American banks appears to be on the verge of keeping the right to have no capital at all.

That group is the money market funds, which function as banks but historically have had the best of all regulatory worlds: no capital requirements, no reserves, no fees for deposit insurance and a belief by their customers that they were at least as safe as banks.

This week the comment period closed on proposed money market rules set forth by the Securities and Exchange Commission. The rules are pitifully weak and inadequate. They could even make the system more vulnerable in a crisis, as the presidents of all 12 Federal Reserve banks pointed out in a letter to the S.E.C.

But that has not stopped the mutual fund industry from trying to weaken them even more.

By coincidence, the deadline for comments was on Thursday, just five days after the fifth anniversary of the collapse of Lehman Brothers. It was that collapse that revealed to all just how shaky the money market industry was.

The answer is — or ought to be — remarkably simple:

“They either have to be banks or mutual funds,” Paul A. Volcker, the former Federal Reserve chairman, told me in an interview. “If they are banks, promising to pay at par on demand, they should be regulated like banks. If they are mutual funds, they should be regulated like mutual funds.”

Read the full article, Money Funds Are Circling the Wagons on Rules, on the New York Times website.