WASHINGTON, D. C. —– On April 12, 2021, the Systemic Risk Council issued its preliminary response to the Securities and Exchange Commission consultation on the President’s Working Group report on reforming money market and other open-ended funds in the light of the March 2020 turmoil in U.S. short-term financing markets.
The SRC welcomes the PWG report and the SEC’s initiative. After the money market has been bailed out twice in just over a decade, the current review is badly needed. In its response, the Council offers views on, among other details, gates and floating net asset values. More generally, it emphasizes that the underlying problem arises where particular asset classes are widely perceived as safe and liquid even when they are inherently fragile. The problem will not be solved until the authorities, working with Congress, determine what money-like instruments will be backed by Federal Reserve liquidity insurance, the regulatory and other conditions attached to that access, and how to prevent other non-banks getting access to the safety net.
Paul Tucker, chair of SRC, said:
“Shadow banking vulnerabilities are the financial system’s Achilles Heel, but have been neglected for years. Short-term financing markets have been driven by a widespread perception that money funds are safe, making it almost inevitable the federal government provides rescue facilities when trouble hits. Something has to change.”
The full text of the SRC’s letter to the SEC is available here or http://www.systemicriskcouncil.org/wp-content/uploads/2021/04/Systemic-Risk-Council-Comment-Letter-File-No.-S7-01-21.pdf