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Money Fund Wisdom News

Apr 22

Assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Dublin, Luxemburg or the Cayman Islands, marketed to multinational corporations and subsidiaries outside the U.S. and denominated in USD, Euro and GBP (sterling), rose by $33.7 billion to $712.9 billion in the first quarter of 2014. U.S. Dollar (USD) funds (142) tracked by Crane Data's Money Fund Intelligence International account for over half ($385.9 billion, or 54.1%) of the total, while Euro (EUR) money funds (98) total E72.0 billion (about $99.0 in USD) and Pound Sterling (GBP) funds (95) total L136.8 ($227.9 in USD). Offshore USD MMFs yielded 0.03% on average as of March 31, 2014, while EUR MMFs yielded 0.07% and GBP MMFs yielded 0.28% (our Crane MFII 7-Day Yield Indexes). We review the latest MFI International Money Fund Portfolio Holdings below for the three major currencies, and we also give details on our second annual European Money Fund Symposium (Sept. 22-23 in London). Note: Offshore money market funds are not available for sale to U.S. investors.

The USD funds tracked by MFI International contain, on average 24.6% in Certificates of Deposit (CDs), 24.1% in Commercial Paper (CP), 16.9% in Treasury securities, 15.7% in Other securities (primarily Time Deposits), 14.5% in Repurchase Agreements (Repo), 3.7% in Government Agency securities and 0.5% in VRDNs (Variable-Rate Demand Notes). USD funds have on average 28.5% of their portfolios maturing Overnight, 7.2% maturing in 2-7 Days, 18.1% maturing in 8-30 Days, 24.6% maturing in 31-90 Days, 15.9% maturing in 91-180 Days, and 5.7% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (32.6%), France (13.8%), Canada (8.7%), Japan (8.4%), Sweden (7.0%), Great Britain (6.0%), Germany (5.6%), Australia (4.8%), Netherlands (4.5%), and Switzerland (2.6%).

The 20 Largest Issuers to "offshore" USD money funds include: the US Treasury with $76.0 billion (16.6% of total portfolio assets), Credit Agricole with $21.4B (4.7%), the Federal Reserve Bank of New York with $18.0B (3.9%), Bank of Tokyo-Mitsubishi UFJ Ltd with $15.2B (3.3%), BNP Paribas with $14.7B (3.2%), Natixis with $12.8B (2.8%), Bank of Nova Scotia with $11.2B (2.4%), Barclays PLC $10.5B (2.3%), Svenska Handelsbanken with $10.4B (2.3%), Skandinaviska Enskilda Banken AB (SEB) with $10.0B (2.2%), `Sumitomo Mitsui Banking Co with $9.2B (2.0%), Rabobank with $8.8B (1.9%), JP Morgan with $8.5B (1.9%), Deutsche Bank AG with $8.2B (1.8%), HSBC with $7.6B (1.7%), RBC with $7.4B (1.6%), Toronto-Dominion Bank with $7.3B (1.6%), Wells Fargo with $7.2B (1.6%), Federal Home Loan Bank with $7.1B (1.5%), and Nordea Bank with $7.0B (1.5%).

The EUR funds tracked by MFI International contain, on average 38.9% in CDs, 24.4% in CP, 17.8% in Other (primarily Time Deposits), 9.8% in Repo, 5.3% in Agency securities, 3.4% in Treasury securities, and 0.3% in VRDNs. Euro funds have on average 25.2% of their portfolios maturing Overnight, 6.7% maturing in 2-7 Days, 19.4% maturing in 8-30 Days, 29.5% maturing in 31-90 Days, 16.0% maturing in 91-180 Days, and 3.3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.4%), Germany (15.9%), Netherlands (11.8%), Great Britain (9.2%), Japan (6.9%), Sweden (6.7%), US (5.9%), Belgium (2.3%), Finland (2.1%), and Austria (1.4%).

The 15 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E5.3B (7.4%), FMS Wertmanagement with E4.7B (6.5%), Republic of France with E3.5B (4.8%), Rabobank with E3.1B (4.3%), HSBC with E2.8B (3.9%), Societe Generale with E2.6B (3.6%), Credit Agricole with E2.4B (3.3%), Barclays PLC with E2.0B (2.8%), ING Bank with E2.0B (2.8%), Credit Mutuel with E2.0B (2.8%), Svenska Handelsbanken with E1.9B (2.7%), Nordea Bank with E1.7B (2.4%), Bank of Tokyo-Mitsubishi UFJ Ltd with E1.6B (2.2%), Pohjola Bank PLC with E1.5B (2.1%), and JP Morgan with E1.5B (2.1%).

The GBP funds tracked by MFI International contain, on average 32.2% in CP, 29.6% in Other (Time Deposits), 25.5% in CDs, 7.2% in Repo, 2.9% in Treasury, 2.2% in Agency, and 0.4% in VRDNs. Sterling funds have on average 27.1% of their portfolios maturing Overnight, 4.3% maturing in 2-7 Days, 19.7% maturing in 8-30 Days, 31.2% maturing in 31-90 Days, 14.0% maturing in 91-180 Days, and 3.6% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Great Britain (19.1%), France (16.8%), Germany (10.7%), Netherlands (9.4%), Japan (8.2%), Sweden (8.0%), US (6.2%), Switzerland (4.6%), Australia (4.0%), and Canada (3.7%).

The 15 Largest Issuers to "offshore" GBP money funds include: Lloyds TSB Bank PLC with L5.7B (5.4%), BNP Paribas with L4.8B (4.5%), FMS Wertmanagement with L4.7B (4.5%), Nordea Bank with L4.3B (4.1%), Rabobank with L4.1B (3.9%), Credit Agricole with L4.0B (3.8%), Standard Chartered Bank with L3.6B (3.4%), ING Bank with L3.4B (3.2%), UK Treasury with L3.3B (3.1%), Bank of Tokyo-Mitsubishi UFJ Ltd with L3.3B (3.1%), HSBC with L3.3B (3.1%), Sumitomo Mitsui Banking Co with L3.1B (2.9%), Barclays PLC with L3.0B (2.8%), Oversea-Chinese Banking Co with L2.9B (2.7%), and JP Morgan with L2.9B (2.7%). (E-mail us at (or call 508-439-4419) to request a copy of our latest MFI International or MFII Portfolio Holdings.)

Finally, Crane Data has published the preliminary agenda and is now accepting registrations for its second annual European Money Fund Symposium, which will take place Sept. 22-23, 2014, at the London Tower Hilton in London, England. (Visit for details.) Our inaugural European event last September in Dublin attracted over 100 money fund professionals, and we expect this year's event to be even bigger and better. Sponsorships and a handful of speaking slots are still available. Contact us for the full brochure and for more details.

Apr 10

That giant sucking sound you heard at month-end in March was money market investments leaving everywhere else and moving to the Federal Reserve Bank of New York's reverse repo program. Crane Data released its April Money Fund Portfolio Holdings yesterday afternoon, and our latest collection of taxable money market securities, with data as of March 31, 2014, shows a huge jump in Repo with the New York Fed and big declines in overall holdings, Time Deposits (the SEC's "Other" category), CDs and CP. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) decreased by $43.0 billion in March to $2.431 trillion. Portfolio assets decreased by $32.7 billion in February and by $258 million in January, after an increase of $55 billion in December. CDs remained the largest holding among taxable money funds, followed closely by Repo, then by Treasuries, CP, Agencies, Other, and VRDNs. Money funds' European-affiliated holdings plummeted again at quarter-end on the shift from dealer repo and time deposits into Fed repo; European holdings are now below 25% of holdings (down from 29.8% last month). Below, we review our latest portfolio holdings statistics.

Among all taxable money funds, Certificates of Deposit (CD) fell again in March, decreasing $22.9 billion to $543.1 billion, or 22.3% of holdings. Repurchase agreement (repo) holdings jumped by $55.1 billion to $534.0 billion, or 22.0% of fund assets. (Money funds' repo at the NY Fed more than doubled, surging from $91.8 billion to $203.1 billion, though non-Fed repo plunged by $56.1 billion to $330.9 billion, or 62.0% of total repo. Money funds accounted for 84% of the Fed's $242 billion in total repo assets; see our April 2 Link of the Day, "Fed Repo Sets Record at Quarter End") Treasury holdings, the third largest segment, increased by $7.5 billion to $474.1 billion (19.5% of holdings). Government Agency Debt continued its slide, falling by $10.1 billion. Agencies now total $330.5 billion (13.6% of assets). Commercial Paper (CP), the fifth largest segment, decreased by $21.4 billion to $380.8 billion (15.7% of holdings). Other holdings, which include Time Deposits, dropped sharply (down $49.0 billion) to $136.6 billion (5.6% of assets). VRDNs held by taxable funds dropped by $2.3 billion to $32.0 billion (1.3% of assets). (Crane Data's Tax Exempt fund data will be released in a separate series late Thursday and our "offshore" holdings will be released Friday.)

Among Prime money funds, CDs still represent over one-third of holdings with 35.2% (down from 36.0% of a month ago), followed by Commercial Paper (24.7%, down from 25.6%). The CP totals are primarily Financial Company CP (14.8% of holdings) with Asset-Backed CP making up 5.7% and Other CP (non-financial) making up 4.2%. Prime funds also hold 5.2% in Agencies (down from 5.7%), 6.6% in Treasury Debt (up from 6.5%), 5.2% in Other Instruments, and 5.1% in Other Notes. Prime money fund holdings tracked by Crane Data total $1.542 trillion (down from $1.573T), or 63.4% (down from 63.6%) of taxable money fund holdings' total of $2.431 trillion.

Government fund portfolio assets totaled $434.3 billion, down from $443.8 billion last month, while Treasury money fund assets totaled $454.7 billion, down slightly from $457.8 billion at the end of January. Government money fund portfolios were made up of 56.8% Agency securities, 19.5% Government Agency Repo, 8.0% Treasury debt, and 15.2% Treasury Repo. Treasury money funds were comprised of 74.2% Treasury debt and 24.5% Treasury Repo.

European-affiliated holdings declined sharply, down $137.4 billion in March to $599.9 billion (among all taxable funds and including repos); their share of holdings is now 24.7%. Eurozone-affiliated holdings also plunged (down $79.8 billion) to $347.9 billion in March; they now account for 14.3% of overall taxable money fund holdings. Asia & Pacific related holdings fell by $10.7 billion to $284.0 billion (11.7% of the total), while Americas related holdings jumped $104.4 billion to $1.545 trillion (63.6% of holdings).

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (up $76.1 billion to $300.8 billion, or 12.4% of assets, Government Agency Repurchase Agreements (down $21.8 billion to $148.8 billion, or 6.1% of total holdings), and Other Repurchase Agreements (up $894 million to $84.4 billion, or 3.5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $14.6 billion to $227.5 billion, or 9.4% of assets), Asset Backed Commercial Paper (down $3.1 billion to $88.4 billion, or 3.6%), and Other Commercial Paper (down $3.6 billion to $64.9 billion, or 2.7%).

The 20 largest Issuers to taxable money market funds as of March 31, 2014, include: the US Treasury ($474.1 billion, or 19.5%), Federal Reserve Bank of New York ($203.1B, 8.4%), Federal Home Loan Bank ($197.2B, 8.1%), BNP Paribas ($65.0B, 2.7%), Bank of Tokyo-Mitsubishi UFJ Ltd ($62.8B, 2.6%), Bank of Nova Scotia ($61.0B, 2.5%), JP Morgan ($54.6B, 2.1%), RBC ($50.8B, 2.1%), Credit Agricole ($50.6B, 2.1%), Federal Home Loan Mortgage Co ($49.8B, 2.1%), Sumitomo Mitsui Banking Co ($48.1B, 2.0%), Credit Suisse ($47.6B, 2.0%), Citi ($46.8B, 1.9%), Wells Fargo ($46.0, 1.9%), Bank of America ($43.5B, 1.8%), Federal National Mortgage Association ($43.5B, 1.8%), Barclays Bank ($39.8B, 1.6%), Deutsche Bank AG ($39.2B, 1.6%), Toronto-Dominion Bank ($37.3B, 1.5%), and Federal Farm Credit Bank ($37.0B, 1.5%).

In the repo space, Federal Reserve Bank of New York's RPP program issuance (held by MMFs) remained the largest program by far with 38.0% of the repo market. The 10 largest Repo issuers (dealers) (with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($203.1B, 38.0%), BNP Paribas ($36.3B, 6.8%), Bank of America ($33.6B, 6.3%), Barclays ($25.9B, 4.8%), Goldman Sachs ($22.4B, 4.2%), Citi ($20.6B, 3.9%), Credit Suisse ($19.8B, 3.7%), Wells Fargo ($19.4B, 3.6%), JP Morgan ($18.2B, 3.4%), and RBC ($17.4B, 3.3%). Crane Data shows 79 money funds buying the Fed's repos, with just 4 funds -- Federated Govt Obligations, JP Morgan Prime MM, Morgan Stanley Inst Liq Govt, and Western Asset Inst Liq Reserves -- maxing out the previous $7 billion limit.

The 10 largest CD issuers include: Bank of Tokyo-Mitsubishi UFJ Ltd ($43.8B, 8.1%), Sumitomo Mitsui Banking Co ($42.0B, 7.8%), Bank of Nova Scotia ($35.6B, 6.6%), Toronto-Dominion Bank ($31.1B, 5.8%), Bank of Montreal ($30.1B, 5.6%), Rabobank ($24.5B, 4.5%), Mizuho Corporate Bank Ltd ($23.3B, 4.3%), Credit Suisse ($20.0B, 3.7%), BNP Paribas ($18.5B, 3.4%), and Wells Fargo ($18.3B, 3.4%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: JP Morgan ($23.4B, 7.1%), Westpac Banking Co ($15.8B, 4.8%), Commonwealth Bank of Australia ($13.6B, 4.1%), RBC ($11.7B, 3.5%), FMS Wertmanagement ($11.4B, 3.4%), HSBC ($10.9B, 3.3%), Skandinaviska Enskilda Banken AB ($10.1B, 3.0%), Barclays PLC ($9.5B, 2.9%), National Australia Bank Ltd ($9.2B, 2.8%), and BNP Paribas ($9.1B, 2.8%).

The largest increases among Issuers include: the Federal Reserve Bank of New York (up $111.2B to $203.1B), the US Treasury (up $7.5B to $474.1B), Bank of Nova Scotia (up $3.8B to $61.0B), Toronto-Dominion Bank (up $2.8B to $37.3B), and Federal Home Loan Mortgage (up $2.5B to $49.8B). The largest decreases among Issuers of money market securities (including Repo) in March were shown by: Lloyd's TSB Bank PLC (down $15.9B to $10.6B), Societe Generale (down $15.6B to $29.2B), BNP Paribas (down $15.5B to $65.0B), Federal Home Loan Bank (down $14.0B to $197.2B), DnB NOR Bank ASA (down $13.0B to $15.8B), and Deutsche Bank (down $13.0B to $39.2B).

The United States remained the largest segment of country-affiliations; it now represents 54.5% of holdings, or $1.326 trillion. Canada (9.0%, $217.9B) moved into second place ahead of France (7.9%, $191.6B), and Japan (7.3%, $178.3B) remained the fourth largest country affiliated with money fund securities. The UK (3.7%, $90.3B) remained in fifth place, and Sweden (3.5%, $84.6B) remained in sixth. Australia (3.2%, $78.9B) moved up to seventh while Germany (3.1%, $74.8B) dropped to 8th. The Netherlands (3.0%, $73.4B) was ninth and Switzerland (2.5%, $61.1B) was tenth among country affiliations. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of March 31, 2014, Taxable money funds held 22.8% of their assets in securities maturing Overnight, and another 12.1% maturing in 2-7 days (34.8% total in 1-7 days). Another 21.6% matures in 8-30 days, while 25.8% matures in the 31-90 day period. The next bucket, 91-180 days, holds 14.0% of taxable securities, and just 3.7% matures beyond 180 days.

Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated yesterday, and our MFI International "offshore" Portfolio Holdings will be updated Friday (the Tax Exempt MF Holdings will be released late today). Visit our Content center to download files or visit our Portfolio Laboratory to access our "transparency" module. Contact us if you'd like to see a sample of our latest Portfolio Holdings Reports or our new Reports Issuer Module.

Mar 07

The March issue of Crane Data's Money Fund Intelligence was sent out to subscribers on Friday morning. The latest edition of our flagship monthly newsletter features the articles: "Commissioners Push Alternatives in Reform Debate," which reviews recent SEC comments on pending regulations; "Federated Investors Debbie Cunningham," which interviews Federated's CIO for Global Money Markets; and, "Cash Breaks $10 Trillion; Deposits Continue Surging," which reviews the continued growth in bank deposits. We also updated our Money Fund Wisdom database query system with Feb. 28, 2014, performance statistics and rankings last night, and we sent out our MFI XLS spreadsheet earlier. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our February 28 Money Fund Portfolio Holdings data are scheduled to go out on Tuesday, March 11.

The latest MFI newsletter's lead article comments, "After SEC Chair White indicated last month that completing money fund regulatory reforms is a "critical priority for the Commission in the relatively near term of 2014," several other SEC Commissioners have weighed in on the topic in recent speeches. Commissioner Michael Piwowar told the Wall Street Journal that he advocated letting investors choose between a floating NAV and a gates and fees option, while Commissioners Gallagher and Stein blasted and defended the FSOC, respectively. Meanwhile, meetings and lobbying over the pending regulations continues."

As we wrote in our March 4 News , "The Journal commented late last week: As U.S. securities regulators move to finalize long-awaited rules aimed at reducing risks to the $2.7 trillion money-market mutual-fund industry, one official wants investors to have greater choice in the types of funds in which they can invest."

The "profile" with Federated's Cunningham says, "This month MFI interviews Federated Investors' Executive VP & CIO for Global Money Markets Deborah Cunningham. Our Q&A follows. MFI: Tell us about your history. Cunningham: From Federated's perspective, we've been involved in running cash since the beginning of time. We now have the oldest registered money market fund on the books of the SEC, Federated Money Market Management. It has 40+ years of history at this point. We ran cash before we even had funds, so we had risk-averse strategies from the very beginning."

Cunningham's intro continues, "As far as our historical involvement in the money fund industry, we've been involved in every step of the process, from the original exemptive orders that led to amortized cost, to the first go-round of 2a-7, to the '92 amendments, the '96 amendments, the 2010 amendments, etc.... I started at Federated in 1981, and began in our accounting department. I moved in to the Investment Management and began actively involved in the team management process for the money funds in 1986." (Watch for excerpts of this interview later this month, or write us to request the full article.)

The February MFI article on Cash Breaking $10 Trillion explains, "The latest Federal Reserve statistics show that bank deposits, the main competitor of money funds and main beneficiary of the financial crisis, continue to surge, even following last year's expiration of unlimited FDIC insurance. Overall cash, including bank deposits (in banks and thrifts), money fund assets and small time deposits, broke above the $10 trillion level late last year for the first time in history."

Crane Data's March MFI with Feb. 28, 2014 data shows total assets falling by $44.9 billion (after rising by $561 million last month) to $2.574 trillion (1,238 funds, the same number as last month. Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at a record low 0.01% while our Crane 100 Money Fund Index (the 100 largest taxable funds) yielded 0.02% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.13% (Crane MFA, down one bps) and 0.16% (Crane 100) on an annualized basis for both the 7-day and 30-day yield averages. (So Charged Expenses averaged 0.12% and 0.14% for the two main taxable averages.) The average WAM and WAL for the Crane MFA and the Crane 100 were 45 and 47 days, respectively, unchanged from last month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Mar 06

U.S. Securities and Exchange Commission Commissioner Daniel M. Gallagher took another opportunity to blast capital requirements and banking regulations for investment funds, and warn of the threat of FSOC, at "Remarks Given at the Institute of International Bankers 25th Annual Washington Conference Monday. He didn't say much on pending money fund regulations, but comments, "Before I begin, I'd like to point out that two years ago, I spoke at this conference and discussed the Financial Stability Oversight Council, or FSOC, in great detail. I spoke about the inherently political nature of FSOC, how it had been vested with tremendous power, and how it could threaten our capital markets. So, given everything that has happened since then, I have to say: I told you so." (See also, our Jan. 16 Crane Data News, "SEC Commissioner Gallagher Blasts Capital, Banking Paradigm for Mkts".)

Gallagher continues, "Today, I'd like to share some thoughts about regulatory capital requirements. I've spoken before about the significant differences between bank capital and broker-dealer capital, because I fear that these distinctions are all too often overlooked in the debates over regulatory capital.... In the capital markets, there is no opportunity without risk -- and that means real risk, with a real potential for losses. Whereas bank capital requirements are based on the reduction of risk and the avoidance of failure, broker-dealer capital requirements are designed to manage risk -- and the corresponding potential for failure -- by providing enough of a cushion to ensure that a failed broker-dealer can liquidate in an orderly manner, allowing for the transfer of customer assets to another broker-dealer."

He says, "As I said, it's counterintuitive, but the possibility -- and the reality -- of failure is part of our capital markets.... A safety-and-soundness bank-based capital regime simply doesn't work in the context of capital markets. To put it another way, when you deposit a dollar into a bank account, you expect to get that dollar back, plus a bit of interest.... When you invest a dollar through a broker-dealer account, however, the market determines how much you get back. You could break even, you could double your investment, or, of course, you could lose part or all of that initial investment. The point is that when we make a bank deposit, we expect, at a minimum, to receive the entirety of our principal back, while when we make an investment, we expect the market to dictate what we receive in return. It stands to reason, therefore, that the capital requirements for broker-dealers must be tailored accordingly."

Gallagher explains, "I'm sure you didn't need an SEC Commissioner to explain to you the difference between a deposit and an investment. And yet, when it comes to setting capital requirements, bank regulators seem increasingly determined to seek a one-size-fits-all regulatory construct for financial institutions. In addition, as noted by my friend Peter Wallison in an important recent op-ed in The Hill, both the Dodd-Frank-created FSOC and the G-20-created -- and bank regulator dominated -- Financial Stability Board seem intent on applying the bank regulatory model to all financial institutions they deem to be systemically important."

Gallagher tells us, "The recent FSOC intervention in the money market mutual fund space shined a spotlight on this newly expansive vision of the role of banking regulators. The money market mutual fund reform debates that raged through 2012 focused in large part on the concept of a "NAV buffer," which effectively is a capital requirement for money market funds. This debate culminated in the November 2012 issuance of a report by FSOC which incorporated the concept of a so-called "NAV buffer."

He adds, "The reasoning behind capital buffer requirements for money market funds is that they would serve to mitigate the risk of investor panic leading to a run on a fund. The figures under discussion, however, were far too low to promise any serious effect on panic, while the imposition of real, bank- or even broker-dealer-like capital requirements in this space, on the other hand, would simply kill the market for money market mutual funds. A 50 basis point buffer, to be phased in over a several year period, would hardly stem investor panic, unless one believes that investors would be comforted by the knowledge that for every dollar they had on deposit, the money market fund had set aside half a penny as a capital buffer."

Gallagher says, "Crucially, as I've noted before, there is no limiting principle to the application of this bank-based view of capital -- indeed, last September, Treasury's Office of Financial Research issued a fatally-flawed "Asset Management and Financial Stability" report featuring similar reasoning, as reflected in its implied support for "liquidity buffers" for asset managers. It remains unclear as to whether the Fed is indeed seeking to impose bank-based capital charges on non-bank entities in conjunction with granting them access to the discount window -- at the cost of submitting to prudential regulation -- or whether it is instead proposing those additional capital charges in order to prevent non-prudentially regulated financial entities from ever relying upon the "government safety net" provided by the discount window."

He continues, "Bank regulators and their wide-eyed admirers have spoken at length about the risks of "shadow banking," which they define broadly to include the types of "securities funding transactions," such as repo and reverse repo, securities lending and borrowing, and securities margin lending, used by both banks and broker-dealers for short-term funding. The loaded term "shadow banking" isn't exactly used as an honorific, and I find it concerning that so many bank regulators routinely use the term to describe the day-to-day transactions so crucial to ensuring the ongoing operations of our capital markets."

The Commissioner states, "To be clear, I respect the Fed's concerns about capital requirements for bank affiliated non-bank financial institutions, notwithstanding my fears as to the steps the Fed might take to address those concerns. Our financial institutions are interconnected as never before, increasing the importance of taking a holistic view of those institutions, subsidiaries and all. In doing so, however, it is crucial that we bring to bear the specialized experience and expertise of the regulators with primary oversight responsibility over the constituent parts of those institutions. In the case of broker-dealers, this means the Commission, with its nearly eight decades of experiences in this regulatory space."

Finally, he comments, "It's my hope that the bank regulators constructively participate in this dialogue as well. The last thing anyone wants is the old Washington cliche of a "turf war." For one thing, we'd lose -- the SEC will never have the resources of the banking agencies -- after all, it's hard to outspend agencies that can print their own money. More to the point, however, we'd never want to "win" -- not only are we busy enough as it is, with approximately sixty Dodd-Frank mandated rules yet to be completed along with the day-to-day, blocking-and-tackling work that's so critical to the agency's mission, but we recognize that the banking regulators are best situated to regulate banks. When it comes to the broker-dealer subsidiaries of banks, however, we stand ready to work with the Fed and other banking regulators to ensure that any new rules applicable to those entities are enhancements to our existing regime, not duplicative, contradictory or counterproductive regulations inspired by a regulatory paradigm designed for wholly different entities."