In his "Welcoming Remarks" at the "2011 Money Market Funds Summit," Edward C. Bernard, Chairman of the Investment Company Institute and Vice Chairman, T. Rowe Price Group Inc said, "Just about two weeks ago, the Institute hosted another meeting -- its annual General Membership Meeting -- where we had the honor of hearing from Treasury Secretary Timothy Geithner. When he was asked about money market funds, Secretary Geithner gave a pretty good description of what we're trying to do here today. As he said, the challenge we face is 'to figure out how to bring a little bit more resilience into that system -- without depriving the economy of the broader benefits that those funds provide.' Secretary Geithner went on to say: 'I think it's hard.' Boy, don't we know it."
Bernard continued, "It's been 32 months -- to the day -- since the Reserve Primary Fund broke the dollar, and we've been working nearly every day since toward finding the balance that Secretary Geithner described. Our industry and our financial regulators have devoted enormous resources to the hunt for solutions. We've considered a wide range of ideas, but there's still no consensus on any proposal that will give us all comfort that we can take the next step, without undermining the significant economic and investor benefits that money market funds provide. That's true even after the President's Working Group Report and the Securities and Exchange Commission's Roundtable last week."
He added, "[M]oney market funds don't exist in a vacuum. The landscape in which they operate is very different today. The crisis has changed how other players in the money markets behave. And to the degree that financial regulatory reform has made banks and other financial institutions more secure, money market funds will be less susceptible to systemic problems, like the liquidity freeze in September 2008.... [W]e have solid evidence that investors still value and prize the core features of money market funds -- stability, simplicity, and convenience. How else can we explain the fact that institutional and individual shareholders still have a combined $2.7 trillion in money market funds -- after months of yields near zero, and when those investors could get significantly higher returns in short-term bond funds with the click of a mouse?"
The Keynote speech, given by Vanguard Group Chairman F. William McNabb III, was entitled, "A World Without Money Market Funds?" It says, "I want to start by thanking ICI for facilitating this forum, and really, for leading the conversation on money market fund reform for the past several years.... [T]he dialogue has been, by turns, both encouraging and frustrating. We were greatly encouraged last year, for example, when the SEC adopted improvements to Rule 2a-7, which strengthened money market fund standards for liquidity, credit quality, maturity, and transparency. But we've been frustrated more recently by some of the rhetoric calling for money market funds to essentially be turned into short-term bond funds -- or banks."
McNabb told the approximately 150 attendees, "I'm going to talk about why these funds have been so important, and then, what the world might look like without money market funds ... because, make no mistake, that is the conversation we are having. Whether we are talking about floating NAVs or bank-like regulation or some of the other proposals we've heard, the issue in front of us is a choice. A choice between a world with money market funds ... and a world without money market funds.... [M]oney market funds are one of the most important financial innovations of the past century."
He added, "If the structure of these funds is significantly changed -- say, by mandating excessive capital requirements or by floating the $1 share price -- money market funds as we know them would disappear. And I don't believe the ramifications of 'a world without money market funds' has been fully considered or understood. We take threats to the interests of our investors very seriously. I think it's better to have a pre-mortem analysis of the importance of money market funds rather than post-mortem regrets."
Finally, McNabb said, "I don't mean to sound dramatic. But this is a serious topic, and I'd ask participants on all sides of this debate to bear in mind: The great improvements that have been made to money market fund regulations over the years; and the law of unintended consequences that could be realized with significant changes to the structural integrity of these funds. Remember, at the end of the day, many of us in this room are stewards of other people's money. What's at stake is incredibly important to millions of investors, businesses, and the health of the overall economy."
