In a colloquy with Treasury Secretary Tim Geithner during the Secretary’s recent appearance before the Senate Banking Committee, Senator Robert Corker (R-TN) said that the Financial Stability Oversight Council (FSOC) can act if the SEC fails to move forward with money market fund reforms beyond the 2010 reforms the SEC has already effected. Senator Corker is concerned that a run on money market funds could create systemic risk. Secretary Geithner replied that, while money market funds are in a stronger position since the 2010 reforms, they are still susceptible to runs that could hurt investors and the financial system as a whole. He noted that the Fed and SEC Chairs, two members of FSOC, also believe that money market fund reforms must go further because of the concerns around systemic risk. In its annual report, FSOC endorsed additional money market fund reform and urged the SEC to publish structural reform options for public comment and ultimately adopt reforms addressing money market funds susceptibility to runs.
The Secretary said it is important for the SEC to propose a range of options on money market reform so that the market can assess them and comment on them and the SEC can reflect on them. The SEC can and must go further than it has gone. Various options are available, he noted, such as a free floating NAV. Senator Corker observed that a free floating NAV would require a change in the federal tax code. A free floating NAV should not create tax consequences, he said, adding that a de minimus floating NAV should not create tax consequences.