Yesterday, Mary Miller, Acting Deputy Secretary And Under Secretary Of The Treasury, gave Testimony Before The Senate Committee On Banking, Housing And Urban Affairs. Regarding topics of interest to money market funds, she comments, "Treasury and the Financial Stability Oversight Council also remain focused on emerging threats that might arise outside, or on the periphery of, the traditional banking sector. To that end, the Council is actively analyzing the extent to which there are potential threats to U.S. financial stability arising from asset management companies or their activities, and whether such threats could be mitigated by Council designations or whether they would be better addressed through other regulatory measures." (Note: Watch for our February issue of Money Fund Intelligence and our MFI XLS spreadsheet with Jan. 31, 2014, performance data and averages later Friday morning.)
Miller's testimony continues, "As part of this analysis, the Council requested that the Office of Financial Research conduct a study of asset management activities to help determine whether these activities could create, transmit, or amplify stress through the financial system. The OFR released its study at the end of September following a careful analysis that included discussions with a number of market participants and input from Council member agencies with relevant expertise."
She explains, "The Council's focus on emerging risks outside the core banking system led it to issue, at the end of 2012, proposed recommendations for money market mutual fund (MMF) reforms. Throughout this process, the Council has made it clear that the SEC is the primary regulator of MMFs and should take the lead in driving reform. Last June, the SEC proposed regulations intended to reduce the risks presented by MMFs, and we expect that the SEC will issue a final rule later this year that will address the vulnerabilities identified by the Council."
Miller comments, "And finally, in considering risks to financial stability, we cannot ignore fiscal developments at home. Last year, Congress passed a temporary suspension of the debt limit, and that temporary suspension lasts only through February 7, which is tomorrow. After that, in the absence of Congressional action, Treasury will be forced to use extraordinary measures to continue to meet its obligations. We now forecast that we are likely to exhaust these measures by the end of this month. And even though this is an estimate, it is clear that extraordinary measures will not last for an extended period."
Finally, Miller adds, "It would be a mistake to wait until the 11th hour to get this done. The fact is, simply delaying action on the debt limit can cause harm to our economy, financial markets, and taxpayers. We are already seeing some volatility in Treasury bills that mature after February 7. Around the time of last year's delay, we saw consumer and business confidence drop, and investors and market participants publicly question whether it was too risky to hold certain types of U.S. government debt. Such a question should be unthinkable. Given these realities, it is important that Congress move right away to increase our borrowing authority."
