Money market funds are used as “cash management” products – often as bank deposit substitutes – that, like deposits, are redeemable on demand. Unlike deposits, however, they have no capital, no insurance, no access to Federal Reserve liquidity and no legal requirements that their parent companies operate as a “source of strength.” While the value of their underlying assets change with the market every day like every other mutual fund; unlike every other mutual fund, the SEC permits money market funds to price their shares at a $1.00 even when the value of the assets underlying the fund are not worth $1.00. As has been highlighted at length by the FSOC, the President’s Working Group on Financial Markets, the SEC, and others, this special exemption creates significant structural instability that – given the enormous role played by money market funds in the global lending markets – exacerbates crises and can threaten the functioning of our financial markets. We believe the structural weakness must be addressed head-on: either through strong capital requirements or a floating NAV.
On January 18, the Systemic Risk Council sent a comment letter to the Financial Stability Oversight Council urging strong and timely action be taken to address the systemic risk posed by money market funds.
On September 16, the Systemic Risk Council sent a comment letter to the SEC recommending that the Commission strengthen its proposed money market fund reforms and put in place a final rule.