SEC Chairman Mary L. Schapiro has issued a statement noting that significant money market mutual fund reforms are unlikely in the near term. The basis for the Chairman’s statement was her being informed that three Commissioners would not support a staff proposal for additional reforms. Said Chairman Schapiro, “I…consider the structural reform of money markets one of the pieces of unfinished business from the financial crisis.” The Chairman also observed that the staff proposal would have provided the Commission an opportunity to receive public comments on these reforms.
During the recent financial crisis, Reserve Primary Fund broke the buck (i.e., returned less than $1 NAV) largely due to a bad investment in Lehman Brothers commercial paper. Because of the perceived risk to the domestic economy if other money market funds failed, the Fed and Treasury created multiple facilities to support these funds. The SEC issued an interim temporary final rule to allow money market mutual funds to participate in the Treasury guarantee program (IC-28487). This extraordinary support for money market funds has now ended.
Chairman Schapiro issued her statement little more than one week after the Federal Reserve Bank of Boston staff published a report noting that many money market mutual funds would have broken the buck without support from their sponsors during the financial crisis. The report identified 21 prime money market mutual funds that would have broken the buck without a single instance of sponsor support. The report also found 31 prime money funds would have failed without repeated sponsor support.