Sen. Bob Corker, R-Tenn., urged Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro and the agency's four commissioners in a letter on Friday to move ahead with further reform of money-market funds as "a run on money-market funds is still a real risk."
Corker (left), a member of the Senate Banking Committee, told the SEC that he believes there is common ground between Schapiro and the commissioners regarding redemption restrictions on money-market funds.
"Based on my read of Chairman Schapiro's initial draft proposal and the dissenting comments of some of the commissioners, I believe that the SEC may be honing in on a solution that might work," Corker wrote. Both proposals put forth by Schapiro and the two Republican commissioners "point out the benefits of some form of a redemption restriction."
Corker said the commission should continue its pursuit of money-market fund reform to protect taxpayers from a potential bailout, and to prevent Congress from having to step in. "In the event of a disruption in our financial system," Corker wrote, "Congress could be faced with a difficult choice: (1) allow 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 (2) provide another bailout for a fund or the fund industry."
"It appears that there is common ground here around a set of rules that could stem a run and the potential need for government intervention," Corker said. "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, reforms now are better than a taxpayer bailout down the road. Inaction is not an option."
