WSJ Editorial on MMFs Hits SEC
The Wall Street Journal capped off a week of money fund coverage with an editorial on the subject. Entitled, "The Money Fund Mistake," it says, "The taxpayer safety net is about to get a little smaller thanks to a sensible reform from the Securities and Exchange Commission. Too bad regulators also enacted changes to money-fund rules that are discouraging investment and could exacerbate the next financial crisis. The good news is that a 2014 SEC rule that will become effective October 14 requires some institutional money-market funds to report more accurate prices to investors. By allowing their net asset values to float, rather than reporting a fixed value per share, these funds will make clear that they are investment vehicles, not guaranteed bank deposits. By clarifying that investors really can lose money, fund managers can help avoid another 2008-style panic and taxpayer rescue in the event that some funds "break the buck" -- i.e., their values fall below $1 per share. Now for the bad news. Along with this sensible reform, the SEC also enacted rules encouraging new fees and redemption limits in times of stress. These limits are often called "gates" because they would temporarily lock investors into a fund even when they wish to sell. Whereas the first reform creates a more transparent market and conditions investors to accept slight declines without panic, the second does the opposite. Uncertain investors wondering if the fees and gates are about to come crashing down on them will start guessing about the right time to flee. We warned regulators that the threat of such penalties would likely inflame a crisis rather than dampen it. They didn't listen. Now institutional investors like corporate treasurers are asking how they can rely on an account that may not be available when they most need it. The result is less liquidity for the commercial paper and municipal debt markets. This is translating into sharply higher short-term borrowing costs for companies, banks and municipalities.... [T]he threatened gates and fees are driving sharp rate increases while providing only uncertainty for the credit markets. The SEC should scrap these expensive creators of systemic risk." See also the Journal's "Hunting for Yield? They're Handing It Out in the Money Market"," which says, "Something that has been hard to find recently is showing up in the money markets: yield. Rising rates paid by banks and other companies that issue commercial paper are luring new investors to the market, just as more-traditional buyers are scaling back in response to looming regulations."
