Fein Blasts Rosengren Speech
Attorney Melanie Fein has posted yet another comment letter on the SEC's President's Working Group Report on Money Market Fund Reform (Request for Comment) website. This one blasts Federal Reserve Bank of Boston President Eric Rosengren's most recent speech on money market fund reform. Fein writes, "This letter comments on your recent speech entitled "Our Financial Structures--Are They Prepared for Financial Instability?" delivered on June 29, 2012, in which you again address the subject of money market funds ("MMFs"). Your speech reflects a new direction in the Fed's thinking on MMFs based on a more fact-based analysis targeting a specific problem within the Fed's own jurisdiction. By focusing on sponsor support for bank-affiliated MMFs, you have highlighted a significant source of moral hazard and systemic risk in the financial system that needs addressing. In particular, your recognition that bank-affiliated MMFs have required disproportionately higher levels of sponsor support in recent years than other MMFs pinpoints the problem at its source. Your proposal for addressing the problem, however, is perplexing. Your proposal -- to require banking organizations to calculate the amount of support that their affiliated MMFs will likely require under different stress scenarios, and thereby assure the public that such funds are safe and guaranteed by their sponsors -- will increase, not decrease, moral hazard and systemic risk. The mere fact that the Federal Reserve is advocating such a proposal creates a public perception and expectation that bank-affiliated MMFs are guaranteed -- a hazard complained of in your last speech."
