The presidents of the 12 Federal Reserve Banks have submitted a joint letter responding to the Financial Stability Oversight Council's proposal on money market mutual fund reform. In November 2012 the FSOC proposed three rules that would impose structural reforms intended to mitigate the risks posed by these funds to the financial system. According to the FSOC, the proposals would reduce the risk of runs and significant problems spreading through the financial system. The 12 FRBank presidents support the council's efforts to address the structural vulnerabilities of money market mutual funds. They also agree with the council's determination that money market mutual fund activities and practices could create or increase the risk of liquidity and credit problems spreading through the financial system.
“Money market mutual funds have no explicit capacity to absorb losses in the event of a decrease in the value of assets held within the fund's portfolio,” said the presidents in a joint letter to the FSOC. “This structure gives rise to a risk of destabilizing money market mutual fund runs by creating a first mover advantage.”