Bloomberg's Chris Condon writes in an article today, "Volcker Says Money-Market Funds Weaken U.S. Financial System", which says, "Paul Volcker, the former Federal Reserve chairman who is an adviser to President Barack Obama, said money-market mutual funds undermine the strength of the U.S. financial system and should be regulated more like banks." Condon was one of a handful of reporters attending the first annual Crane's Money Fund Symposium in Providence, R.I., on Monday.
He quotes Volcker, "Banks remain the functioning heart of the financial system, and they are protected and regulated. To the extent they have competitors that have different ground rules, kind of free-riders in my view, weakens the financial system."
The piece also quotes Anthony J. Carfang, a partner at Treasury Strategies Inc., "They are an absolutely huge source of cash for high-quality borrowers.... They're highly efficient and very transparent, reducing the cost of capital."
Bloomberg says, "Volcker has been a vocal advocate of imposing bank-like requirements on money funds, to the dismay of asset managers as they wait for the Obama administration to issue new rules for the industry." It adds, "His proposals 'would eliminate money funds as we know them,' Paul Schott Stevens, head of the Investment Company Institute."
The article also says, "Fidelity Investments, based in Boston, is the largest manager of U.S. money-market mutual funds, with $506.3 billion as of July 31, according to Crane Data LLC, a research firm in Westborough, Massachusetts. Fidelity and other independent asset managers, including New York-based BlackRock Inc. and Vanguard Group Inc. of Valley Forge, Pennsylvania, oversee about half of the industry's assets. The rest is managed by fund companies owned by banks, led by JPMorgan Chase & Co., which has $390.3 billion in money-fund assets."
Bloomberg says, "Money-fund managers dodged the possibility of radical change on June 24 when the SEC proposed rules changes largely in line with industry recommendations. Another hurdle approaches on Sept. 15 when the President's Working Group on Financial Markets, a government advisory body, is set to issue a report on the industry. The group was directed by the Obama administration in June to consider whether money-market funds should be forced to abandon the practice of maintaining a $1 net asset value, or NAV, or be required to set up 'emergency liquidity facilities'."
They add, "Volcker said he isn't involved directly with the President's Working Group and wouldn't speculate on what regulatory proposals may result. "I don't know. I'm sure the money-market funds have a very powerful lobbying machine," he said.
Both Carfang and Maloney also spoke at Crane's Money Fund Symposium on Sunday in Providence. Look for more comments from the conference in coming days and in the September issue of Money Fund Intelligence.
