On Friday, the U.S. Chamber of Commerce sent a letter to The Honorable Mary Schapiro, Chairman of the Securities and Exchange Commission, and members of the Financial Stability Oversight Council (FSOC), which was signed by 22 companies and which expressed opposition to any further regulation to money market mutual funds. The letter, entitled, "US Chamber Joins with 22 Companies to Highlight Risks of Increased Regulation to Money Market Funds," says, "The undersigned companies and organizations, representing a diverse range of industries, rely on money market mutual funds to support our capital raising and investment needs. We strongly believe current rules governing money market funds strike the right balance, ensuring conservative operation and liquidity while fulfilling the cash management needs of businesses across the country. As such, we urge regulators to avoid making additional regulatory changes that would fundamentally alter the nature of money market funds, undermining their usefulness to businesses as a source of short-term investing and financing."
The Chamber-led coalition piece explains, "Money market funds are a crucial instrument for businesses' daily cash management and the efficient operation of the U.S. economy. Throughout their 40-year history -- a period which saw countless bank failures and substantial losses in other investment vehicles -- money market funds have provided investors a variety of benefits, including enhanced diversification, robust credit analysis, high-quality, short term assets, and preservation of capital. Moreover, money market funds provide significant administrative efficiencies and accounting and tax simplicity because of the stable $1.00 per share value."
It continues, "Money market funds play a vital role in providing short-term funding not only to corporations, but also state and local governments and financial institutions. Many businesses issue commercial paper to meet critical short-term financing needs such as replenishing inventories and financing expansion. Money market funds are major variable rate notes and tax anticipation notes."
The letter adds, "As such, money market funds are a vital part of the short-term liquidity marketplace, the backbone which supplies essential working capital to U.S. businesses. In fact, money market funds purchase more than one third of the commercial paper issued by American businesses each year. Anything that reduces the attractiveness of money market funds as an investment vehicle for business also reduces the role these funds can play as a source of short-term working capital for the economy. Said differently, if new regulations cause money market fund assets to decline, the decline will also be seen in money market fund purchases of commercial paper and short-term instruments that are so vital in funding U.S. companies, municipalities, and state governments."
The Chamber writes, "The 2010 revisions to SEC Rule 2a-7 have succeeded in strengthening money market funds' ability to withstand turmoil in the markets. However, additional changes to money market funds, such as moving to a floating NAV or adding a capital buffer, would almost certainly lessen the viability and attractiveness of these funds. With money market funds as less attractive investment options, businesses may find moving funds offshore or to other less-regulated products as alternatives -- which is hardly consistent with efforts to reduce risk, increase market transparency and ensure greater market stability. For borrowers, these changes would diminish the market demand for commercial paper, reducing the availability of short-term financing for businesses to meet critical short-term funding needs. A constricted commercial paper market would also translate into significantly higher costs of short term financing, assuming that such financing would even remain available."
The letter concludes, "Money market funds are a vital cash management tool for businesses and are part of the foundational fabric of the short-term cash marketplace. We firmly believe existing regulations ensure the continued stability and viability of money market funds, and that additional regulatory options being considered will have dramatic negative consequences on American businesses' ability to raise the capital necessary to restore economic stability and job creation. Therefore, we strongly urge you to thoroughly evaluate the impact of additional regulation on American businesses and the broader economy and ensure that money market funds maintain their current utility before moving forward with any regulatory changes."
The Chamber of Commerce's letter was signed by: Alcoa Inc., Association for Financial Professionals, Avon, Cadence Design Systems,Ciena, Comcast Corporation, Conair, CVS Caremark Corporation, Devon Energy Corporation, Dominion Resources, Inc., Financial Executives International's Committee on Corporate Treasury, FMC Corporation, Johnson & Johnson, Kraft Foods Global, Inc., National Association of Corporate Treasurers, Safeway Incorporated, The Boeing Company, The ServiceMaster Company, Treasury Strategies, Tyson Foods, U.S. Chamber of Commerce, and Wilbur-Ellis."
It was cc:'d to: The Honorable Timothy Geithner, Secretary of the Treasury, The Honorable Ben Bernanke, Chairman, Federal Reserve Board, The Honorable Martin Gruenberg, Acting Chairperson, Federal Deposit Insurance Corporation, The Honorable Gary Gensler, Chairman, Commodities Futures Trading, Honorable Debbie Matz, Chairman, Credit Union National Administration, The Honorable Edward DeMarco, Acting Director Federal Housing Finance Agency, Mr. John Walsh, Acting Comptroller of the Currency, Office of the Comptroller of the Currency, The Honorable Roy Woodall, Independent Member of Financial Stability Oversight Council.
