Supposedly safe money-market funds have been in the spotlight since the Reserve Primary “broke the buck” in 2008 after a bad bet on Lehman Brothers. The scrutiny only intensified after a number of commentators revealed just how exposed many money-market funds are to the problems in Europe, prompting calls for reform and greater oversight into the funds’ underlying holdings.
In response, the SEC had planned to untether the $1 net asset value, allowing it to float with other investments, along with imposing capital requirements and limiting fees on redemptions. But SEC Chairwoman Mary Schapiro was stymied in her efforts last week, as a provision attached to a funding bill would require the SEC to study the situation once again.
Such a move would push any action past November’s presidential election and possibly to a new SEC chairman, The Wall Street Journal noted in an editorial on Monday. The provision was added by Rep. Jo Ann Emerson, R.-Mo., of the House Appropriations Committee.
The SEC’s plan had met with stiff resistance from fund industry lobbying groups. Mellody Hobson, president of Ariel Investments, noted at the Investment Company Institute’s (ICI) annual conference in May that the industry and the SEC were at “loggerheads” over the issue.
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During a keynote presentation, Hobson told Schapiro that the fund industry has “never dug in its heels like this,” in objection to a reform proposal by the SEC. Schapiro responded in agreement: the industry is “more dug in and strident [on money-market fund reforms] than we’ve seen on other issues.”
Adding futher confusion, Moody’s is scrutinizing a number of major U.S. banks this week, including Bank of America, JPMorgan Chase, Morgan Stanley, Citigroup and Goldman Sachs. The examinations are seen as a possible precursor to downgrades, throwing more turmoil into an increasingly tumultuous money-market situation.