Below, we excerpt from several other statements from last Thursday's panel on "Perspectives on Money Market Mutual Fund Reforms" Senate Banking Committee Chairman Tim Johnson (D-SD) explained, "Today, we are here to review the current state of regulations responsible for providing stability to the money market mutual funds and protecting investors. More than fifty million municipalities, companies, retail investors and others use money market mutual funds. There are $2.6 trillion invested in these funds, which are often viewed as convenient, efficient and predictable for cash management, investment and other purposes. With Americans so heavily invested in these funds this Committee has a responsibility to conduct oversight to see to it that the Securities and Exchange Commission is doing its part and has the resources and authority necessary to effectively regulate this critically important financial market."
Senator Richard Shelby commented, "Today the Committee will hear a range of perspectives on money market fund reform. Since their introduction forty years ago, money market funds have been an important source of short-term financing for businesses, banks, and state and local governments. Money market funds have offered investors a low-cost means to invest in money market instruments and provided them with an efficient cash management vehicle. But, unlike other mutual funds, money market funds are permitted by the SEC to maintain a stable net asset value (NAV). The stable NAV feature of money market funds offers investors the convenience and simplicity of buying and selling shares at a constant one-dollar per share. However, because the market value of the instruments held by the funds can decline, the stable NAV gives the impression that money market funds are without risk and guaranteed to never "break the buck." Indeed, investment management firms have intervened several times with capital contributions and other forms of support to prevent their money market funds from breaking the buck."
The Chamber of Commerce wrote, "On June 21, the Senate Banking Committee held a hearing on the issue of money market fund (MMF) regulation and the potential impact on the U.S. economy if rules such as eliminating the stable $1.00 net asset value (NAV) and restrictions on redemptions are instituted. Among those testifying in opposition to increased regulation was Brad Fox, Vice President and Treasurer of Safeway Inc.... Fox is also Chairman Emeritus of the National Association of Corporate Treasurers (NACT). The scope of his duties handling financing and cash management for an operation the size of Safeway, and his interactions with other treasurers through NACT, give Fox a keen insight into the role of MMFs for businesses."
Fox's testimony said, "There are several important points that I wish to stress to the Committee: Money market mutual funds play a critical role in meeting the short-term investment needs of companies across the country.... Money market funds also represent a significant source of affordable, short term financing for many Main Street companies.... Treasurers are extremely concerned that the changes to money market mutual fund regulation would fundamentally alter the product so that it no longer remains a viable investment option. The significance of such a change cannot be overstated. Should it happen, money market mutual funds would no longer remain a viable buyer of corporate commercial paper, which would drive up borrowing costs significantly and force companies to fund their day to day operations in a less efficient manner. Some corporate treasuers are already making plans to withdraw funds from money market accounts to ensure full access to their funds and avoid the proposed redemption holdback. Also, floating net asset values for money market funds would result in a significant accounting burden for companies across America investing in this product."
Finally, Federated's Chris Donahue said, "We are concerned that, based upon recent speeches by the SEC Chairman and a number of members of the Federal Reserve Board, key regulators have largely disregarded the comments received in response to the PWG Report-not only Federated's comments, but also others who pointed out errors underlying, obstacles to and unintended consequences of possible reforms. More disturbingly, although as of this date neither the SEC nor FSOC have proposed rules or other action specifically targeting MMFs, key members of both agencies have continued to pursue reform proposals heedless of the PWG Report's important warning that "[a]ttempting to prevent any fund from ever breaking the buck would be an impractical goal that might lead ... to draconian and -- from a broad economic perspective -- counterproductive measures...." Their attempt to eliminate risk from MMFs has resulted in draconian proposals that would eliminate MMFs, if not altogether, then as a meaningful component of the U.S. cash markets."
He added, "The ICI, Federated and other MMF managers, and other organizations have attempted to fill this information gap by sponsoring surveys and preparing studies of the financial and operational impact of various proposals. With the advent of FSOC, the SEC staff no longer appears to give this information the same consideration that they gave to the ICI Working Group report. Certainly the SEC Chairman continues to make public statements that either are contradicted by these studies or fail to acknowledge important issues raised by them. Although I confess to being skeptical of the need for further reforms, Federated is willing to consider and assist the SEC, the ICI and the industry in assessing reform proposals that would enhance the resilience of MMFs. I am asking this Committee to encourage the SEC to do the research necessary to determine what changes, if any, are truly needed, and to express its commitment to the continued vitality and growth of this important investment product."