Note: For those attending our 4th annual Crane's Money Fund Symposium, welcome to Pittsburgh! Our conference starts at 1pm Wednesday and goes through Friday at noon. Watch for coverage in coming days.... Fidelity Investments issued a statement yesterday, saying, "See the attached comment letter that the U.S.-based Fidelity Investments submitted to the European Commission in response to their recent "Green Paper" on shadow banking. In it we argue that money market funds are transparent and adequately disclosed, so they should not be considered part of the "shadow banking" system. Refining the terms of the discussion is critical before policymakers and regulators begin careful consideration of what reforms, if any, are needed."
Fidelity's "Comments on European Commission Green Paper on Shadow Banking," say, "Fidelity Investments appreciates the opportunity to provide comments to the European Commission on its Green Paper on Shadow Banking. Among other businesses, Fidelity serves as the investment adviser to a comprehensive suite of investment products, including mutual funds and institutional accounts, with assets under management of approximately US$1.6 trillion."
It explains, "In connection with its investment advisory business across the globe, including over 75 employees in Europe, Fidelity has a deep understanding of a number of the activities that the Green Paper classifies as part of the shadow banking system. For example, Fidelity is the largest money market mutual fund provider in the United States, with more than US$415 billion in MMF assets under management. In addition, a number of our mutual funds, which are registered with, and subject to a comprehensive body of regulation overseen by, the U.S. Securities and Exchange Commission, invest in repurchase agreements and conduct securities lending activities."
The Fidelity letter continues, "With our broad experience in providing investment advisory services, we offer in this letter our views on the issues presented in the Green Paper. We believe the Green Paper is an important first step in the Commission's efforts to understand more fully certain aspects of the financial system. The stated purpose of the paper is to "take stock of current development, and to present on-going reflections on the subject to allow for a wide-ranging consultation of stakeholders." As a stakeholder in this debate, we think this is a worthwhile purpose and we commend the Commission for engaging in this consultation."
They tell us, "To assist in the Commission’s efforts to advance its general understanding and specific discussions of these issues, we focus our attention in this letter on the following matters, which we encourage the Commission to consider: The term "shadow banking" is confusing and misleading and, thus, should be discontinued in favor of terminology focusing on specific activities. Some of the activities classified by the Commission as part of the shadow banking system are quite transparent and adequately disclosed and do not fit within the proposed definition. Some of the activities contribute positively to the broader financial system and, as such, further regulatory action should occur only after careful consideration. Prudential regulation based on the bank regulatory model may not be applicable or appropriate for mitigating risk in many activities treated in the Green Paper. Further regulation may not be required for some activities, such as MMFs, since existing regulation adequately addresses any risks they may present."
Fidelity adds, "Refining the terms of the discussion and the concepts they represent is critical before policymakers and regulators can begin to consider what reforms, if any, are needed for individual activities, including those described in the Green Paper. In addition, there is a significant amount of variation across different jurisdictions that caution against adopting one single approach to reform. For example, differences in the relative size and maturity of national economies, in activities between jurisdictions, in legislative and regulatory frameworks and in the investor and customer bases of financial services firms all should be considered when evaluating the proper course of reform. Without greater precision, policymakers and regulators run the risk of adopting standards that do not efficiently or effectively solve for the risks at hand and, in turn, miss the desired end-state, in which stable financial markets support sustainable economic growth and "a business environment that allows companies to thrive, innovate and expand their activities.""
Finally, the letter adds, "As we highlighted in our response to question (a), we encourage the Commission to discontinue the use of the term "shadow banking" and instead focus on individual activities. The MMF example illustrates why the term "shadow banking" is inappropriate. For those activities like MMF management to which the term does not apply and for which an appropriate regulatory response has already been established, the Commission should acknowledge that the existing regulatory regimes are sufficient and instead should focus its efforts on activities in greater need of attention."