Law firm Stradley Ronon and Counsel Joan Ohlbaum Swirsky write "Group of Thirty Recommends Fundamental Transformation for Money Market Funds" in the company's most recent "Fund Alert, January 2009" publication. (See our Jan. 19 News, "Group of Thirty Recommendation Poses Threat to Money Market Funds".) The article says, "A group of international leaders from the public and private sectors, including key advisers to President Obama, has recommended financial reforms that include fundamental changes to money market funds."
Stradley writes, "The recommended money market fund changes are part of a series of 18 sweeping proposals that address a broad range of financial and economic issues, including the role of rating agencies, the regulation of structured products, and the method of liquidating financial institutions. The Working Group on Financial Reform, which issued the report ("Financial Reform: A Framework for Financial Stability"), is a steering committee of the Group of Thirty, a private, nonprofit, international body composed of very senior representatives of the private and public sectors and academia. The steering committee was led by Paul Volcker, former Chairman of the Federal Reserve Board and Chairman of the Economic Recovery Advisory Board under President Obama, and other members of the Group of Thirty include Timothy Geithner, President Obama's just-confirmed Secretary of the Treasury, and Lawrence Summers, a senior economic adviser to the Obama administration."
The "Fund Alert" continues, "Under the Group of Thirty recommendations, money market funds that offer services that the report characterizes as 'bank-like,' such as checkwriting and assurances of maintaining a stable net asset value, would be required to reorganize as special-purpose banks, with appropriate prudential regulation and supervision, government insurance, and access to central bank lender-of-last-resort facilities. Those institutions remaining as money market mutual funds would have no explicit or implicit assurances to investors that funds could be withdrawn on demand at a stable NAV, would not be permitted to use amortized cost pricing, and would carry a fluctuating NAV.... It is not clear how, if at all, these funds would differ from existing short-term bond funds."
Finally, Stradley's Swirsky says, "The report notes that the recommendations are intended to address recent problems faced by money market funds, which 'underscored the dangers of institutions with no capital, no supervision, and no safety net...' The report does not reference the industry efforts and regulatory initiatives that have, to date, resulted in money market funds' weathering the recent financial crisis with isolated instances of loss to shareholders -- though at significant cost to some fund sponsors. Presumably, money market fund industry participants, including the ICI, will weigh in on the recommendations."
