In a letter to the SEC, Senator Bob
Corker (R-Tenn)., a member of the Senate Banking Committee, urged the Commission
to continue pursuit of money market fund reform to protect taxpayers from a
potential bailout, building on the common ground established with an initial
proposal from Chairman Mary Schapiro. Despite making progress, the SEC set
aside further consideration of a proposed money market rule last month due to a
lack of consensus among Commissioners.
In the event of a disruption in our
financial system, said Senator Corker, Congress could be faced with a difficult
choice of allowing individual investors to bear significant personal losses
while institutional investors, who likely watch the commercial paper markets
closely and would quickly recognize market distress, flee, or providing another
bailout for a fund or the fund industry. Based his read of Chairman Schapiro’s
initial draft proposal and the dissenting comments of some of the Commissioners,
the Senator believes that the SEC may be honing in on a solution that might
work. Both proposals point out the benefits of some form of a redemption
restriction. Some industry observers suggest a 3-5 percent withdrawal holdback
for 30 days with a de minimis exception for small retail investors. Dissenting
Commissioners appear to advocate a gating approach allowing some redemption
restrictions managed by a fund’s board.
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In the Senator’s view, there is
common ground here around a set of rules that could stem a run and the
potential need for government intervention. In the end, an optimal solution
will be found if the SEC Commissioners and industry work together to find an
appropriate structure that minimizes the risk of a wholesale run. Whatever that
solution, he reasoned, reforms now are better than a taxpayer bailout down the
road. Inaction is not an option, Senator Corker emphasized. He urged the SEC to find an acceptable
solution and move forward with a reform proposal along the lines indicated.