Yesterday, Investment Company Institute President and CEO Paul Schott Stevens testified on "Investor Protection and the Regulation of Securities Markets" before the Committee on Banking, Housing, And Urban Affairs of the United States Senate.
Stevens, in his oral statement, said, "Finally, let me comment briefly on money market funds. Last September, immediately following the bankruptcy of Lehman Brothers, a single money market fund was unable to sustain its $1.00 per share net asset value. Coming hard on the heels of a series of other extraordinary developments that roiled global financial markets, these events worsened an already severe credit squeeze. Investors feared that other wondered what major financial institution might fail next and how other money market funds might be affected. Concerned that the short-term fixed-income market was all but frozen, the Federal Reserve and the Treasury Department took a variety of initiatives, including establishment of a Temporary Guarantee Program for Money Market Funds."
He continued, "These steps have proven highly successful. Over time, investors have regained confidence. As of February, assets in money market funds were at an all-time high, almost $3.9 trillion. The Treasury Temporary Guarantee Program will end no later than September 18. Funds have paid more than $800 million in premiums, yet no claims have been made -- and we do not expect any. We do not envision any future role for federal insurance of money market fund assets, and look forward to an orderly transition out of the Temporary Guarantee Program."
Stevens adds, "The events of last fall were unprecedented. But it is only responsible that we, the fund industry, look for lessons learned. So in November 2008 ICI formed a working group of senior fund industry leaders to study ways to minimize the risk to money market funds of even the most extreme market conditions. That group will issue a strong and comprehensive set of recommendations designed, among other things, to enhance the way money market funds operate. We expect that report by the end of this month, and we hope to place the Executive Summary in the record of this hearing."
In the accompanying written report, under a section entitled, "IV. Recent Market Events and Money Market Funds: Evolution and Current Significance of Money Market Funds," ICI says, "Money market funds are registered investment companies that seek to maintain a stable net asset value (NAV), typically $1.00 per share. They are comprehensively regulated under the Investment Company Act and subject to the special requirements of Rule 2a-7 under that Act that limit the funds' exposure to credit risk and market risk."
"These strong regulatory protections, administered by the SEC for nearly three decades, have made money market funds an effective cash management tool for retail and institutional investors. Indeed, money market funds represent one of the most notable product innovations in our nation's history, with assets that have grown more than 2,000 percent (from about $180 billion to $3.9 trillion) since Rule 2a-7 was adopted in 1983. Money market fund assets thus represent about one third of an estimated $12 trillion U.S. 'money market,' the term generally used to refer to the market for debt securities with a maturity of one year or less," said the report.
