U.S. Panel Discusses Potential Fed Oversight of Money Funds

A group of U.S. regulators charged with preventing another financial crisis discussed the possibility of designating money-market mutual funds for Federal Reserve oversight.

The Financial Stability Oversight Council, which is led by Treasury Secretary Timothy F. Geithner and includes Fed Chairman Ben S. Bernanke, also discussed “regulation of cross-border derivatives transactions” and “issues associated with access to mortgage credit,” Treasury spokeswoman Suzanne Elio said in an e-mailed statement today.

Regulators, led by outgoing Securities and Exchange Commission Chairman Mary Schapiro, have been working to overhaul rules governing the $2.6 trillion money-fund industry since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. Its failure, triggered by debt issued by Lehman Brothers Holdings Inc., set off a run by money-fund investors that helped freeze global credit markets.

Schapiro, who leaves the SEC tomorrow, had planned as recently as August to propose that money funds be forced to choose between a floating share value or a combination of capital buffers and withdrawal restrictions. She shelved the proposal when three of her four fellow commissioners signaled that they would reject it.

The council of regulators, or FSOC, began a process last month by which it will pressure SEC commissioners to reconsider the elements of Schapiro’s plan and a third option that also included a capital buffer.

The FSOC today discussed a section of the Dodd-Frank financial overhaul law that “would allow the council to designate money-market mutual funds or their sponsors or advisers for Federal Reserve supervision and enhanced prudential standards,” according to Elio’s statement.

Geithner thanked Schapiro, saying the SEC chairman’s “dedication and leadership have been instrumental to the progress made by this council and by the SEC over the last few years,” according to the statement.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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