"Who Are the FSB 14?"
ICI asks in a new "Viewpoint," "Who Are the FSB 14?." The Fourth in a series of Viewpoints postings on funds and financial stability" piece says, "In their search for ways that investment funds can pose risks to the financial system, regulators and central bankers from around the globe have proposed an arbitrary threshold: any investment fund with assets of more than $100 billion should automatically be subjected to further examination and consideration as a possible "global systemically important financial institution," or G-SIFI. The Financial Stability Board (FSB) -- composed of financial regulators and central bankers from around the globe—said it needed to define a "practical and manageable number" of funds to subject to further analysis. Well, the FSB got a "manageable number." Only 14 funds worldwide lie above this threshold -- all of them regulated U.S. funds. But this process of selecting these funds -- or any regulated fund -- will not bring the regulators any closer to finding or managing systemic risk. Of these 14 funds, three are money market mutual funds.... Three money market funds each have assets exceeding the $100 billion threshold and, under the FSB's proposed methodology, would thus automatically be subject to further examination. (Note: ICI doesn't list the funds, but Crane Data shows the 3 money funds currently over $100 billion as Vanguard Prime MMF ($129.8B), Fidelity Cash Reserves ($116.1B), and JPMorgan Prime MM ($108.2B as of April 30).) However, money market funds have already undergone significant reforms following the extraordinary market conditions in the fall of 2008. In 2010, the SEC amended Rule 2a-7 to impose tighter standards for the liquidity, maturity, and credit quality of money market funds' holdings. These reforms were thoroughly tested by significant challenges to the financial markets in the summer of 2011 caused by the U.S. federal debt-ceiling standoff and deteriorating conditions in Eurozone debt markets. Additional reforms remain under active consideration by the SEC, the appropriate and primary regulator of the mutual fund industry. The SEC's approach is an example of an activity-based focus on risk mitigation, which we'll cover in detail in a future post."
