While it's been a long-time coming, the release of the President's Working Group on Financial Markets report is apparently imminent. (This isn't an April Fool's story!) The report, which has been repeatedly delayed from its original Sept. 15, 2009, due date, was commissioned by the Obama Administration and the Department of the Treasury in their June 2009 white paper, "Financial Regulatory Reform: A New Foundation" (see page 38). The original mandate said, "The President's Working Group on Financial Markets should prepare a report assessing whether more fundamental changes are necessary to further reduce the MMF industry's susceptibility to runs, such as eliminating the ability of a MMF to use a stable net asset value or requiring MMFs to obtain access to reliable emergency liquidity facilities from private sources."
The paper explained (as we quoted in our June 18, 2009 Crane Data News piece), "The vulnerability of MMFs to breaking the buck and the susceptibility of the entire prime MMF industry to a run in such circumstances remains a significant source of systemic risk. The SEC should move forward with its plans to strengthen the regulatory framework around MMFs.... However, these measures should not, by themselves, be expected to prevent a run on MMFs of the scale experienced in September 2008. We propose that the President's Working Group on Financial Markets (PWG) should prepare a report considering fundamental changes to address systemic risk more directly."
It continued, "Those changes could include, for example, moving away from a stable net asset value for MMFs or requiring MMFs to obtain access to reliable emergency liquidity facilities from private sources. For liquidity facilities to provide MMFs with meaningful protection against runs, the facilities should be reliable, scalable, and designed in such a way that drawing on the facilities to meet redemptions would not disadvantage remaining MMF shareholders."
SEC Chairman Mary Shapiro said in her Jan. 27 "Statement on the SEC's Money Market Fund Reforms, "Our work, however, is not yet complete. We will continue to pursue more fundamental changes to the structure of money market funds to further protect them from the risk of runs. Among those possible reforms are: a floating NAV, rather than the stable $1.00 NAV prevalent today; mandatory redemptions-in-kind for large redemptions (such as by institutional investors); 'real time' disclosure of shadow NAV; a private liquidity facility to provide liquidity to money market funds in times of stress; a possible 'two-tiered' system of money market funds, with a stable NAV only for money market funds subject to greater risk-limiting conditions and possible liquidity facility requirements; and several other options being discussed with the President's Working Group."
Finally, at a recent panel that included Crane Data's Peter Crane, the SEC's Bob Plaze responded to an audience question on the PWG report, "It will give [ICI President] Paul Stevens indigestion." We're betting that the report appears Friday or early next week, so stay tuned!
