ICI on FSOC Nonbank Financial Cos
As we mentioned in yesterday's News, the ICI recently commented on the FSOC's "Advance Notice of Proposed Rulemaking Regarding Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies (FSOC-2010-0001). We excerpt more from ICI's letter below, which says, "All financial market activities involve some degree of risk. Indeed, the ability of market participants to spread, share, or take on risk through the financial markets is a prime characteristic of vibrant and innovative economies. Thus, the goal of systemic risk regulation, as a senior Treasury official recently acknowledged, should be to eliminate the abuses and excessive risk taking that can endanger the financial system, while at the same time encouraging acceptable levels of the risk taking that is necessary for innovation and economic growth.... Money market funds have all the protections of the Investment Company Act, and are subject to additional regulation pursuant to Rule 2a-7 under that Act. This rule permits money market funds to value their securities at amortized cost, in order to maintain a stabilized value, usually $1.00 per share. In addition to the important protections described above, money market funds also must comply with stringent maturity, credit quality, and diversification standards (collectively, 'risk-limiting provisions') designed to minimize the deviation between a money market fund's stabilized net asset value and its mark-to-market per-share value. The basic objective of money market fund regulation is to limit a fund's exposure to credit, interest rate, liquidity, and other risks. Money market funds may only invest in high-quality securities, which the fund's board of directors (or its delegate) determines present minimal credit risks. In addition, money market funds may invest only in U.S. dollar denominated instruments and thus do not have currency exchange rate risk."
