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.