Securities and Exchange Commission Chairwoman Mary Schapiro reiterated to senators Thursday her view that further reforms to money-market funds are necessary, saying the funds still “pose a significant risk” to the nation’s economy.
Despite the fact that the SEC reformed money-market funds after the Reserve Fund “broke the buck” during the financial crisis of 2008, Schapiro said members of both political parties as well as the Financial Stability Oversight Council (FSOC) had “raised concerns” about the funds.
The 2010 reforms have not been enough, “and that’s why we’re here today,” Schapiro told the Senate Banking Committee.
In response to Schapiro’s insistence that money market-funds pose a “systemic risk” to the nation’s economy, Sen. Richard Shelby, R-Ala., ranking member of the committee, asked Schapiro if FSOC had yet designated any money-market funds or their activity as “systemically important,” noting that Federal Reserve officials have discussed the funds’ risks in talks about “shadow banking.”
Schapiro replied that while she’s “not a big fan” of the term shadow banking, FSOC has not designated any of the funds as systemically important.
Sen. Jack Reed, D-R.I., pointed to the problem of FSOC designating some money-market funds as systemically important and leaving out others. Schapiro agreed, stating that the benefit of a rule being issued by the SEC is that it would apply to all money-market funds under the SEC’s Rule 2a7.
Shelby went further to ask Schapiro if the Fed should regulate the funds. Schapiro replied: “I think the SEC is a fine regulator; I think [money-market funds] are, at the end of the day, investment products and the SEC is the expert on investment products.” However, the funds’ “value doesn’t fluctuate like investments because we have the fiction of the stable NAV.”