Boston Fed President Eric Rosengren writes "Flirting With Money-Market Madness" in today's Wall Street Journal. He says, "SEC proposals that would increase instability are worse than no reform at all.... Five years after the financial crisis, we know what caused much of the chaos. Many aspects of the financial system have been strengthened, reducing the likelihood of future problems. And yet for money-market mutual funds, fundamental reform has not been enacted. Unfortunately, some reforms proposed by the Securities and Exchange Commission might actually work against financial stability, instead of enhancing it.... Unfortunately, the SEC's proposal would only apply to institutional prime funds and not to the more widespread retail prime funds. This overlooks the fact that more than 30 of the retail prime funds received support from their sponsors during the financial crisis, and many retail prime funds sought liquidity from the emergency liquidity facility. While only institutional prime funds experienced significant investor runs in 2008, without the extensive support provided, retail funds may have suffered the same. The more problematic SEC proposal would allow fund directors to charge an investor for redeeming from a prime money-market fund, and in some cases allow a director to temporarily suspend an investor's access to their funds for up to 30 days. While the proposal aims to manage run-like outflows, "discretionary liquidity fees" and "temporary redemption gates," as they are called, would only increase instability -- which is worse than no reform at all. The liquidity fee would force an investor to take a haircut that might not correlate with any decrease in the underlying asset value. Temporary redemption gates could block investors' access to their funds during a financial crisis -- exactly the time they need liquidity most."

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