U.S. Senator Pat Toomey, a Pennsylvania Republican, said he wouldn’t rule out proposing legislation to protect money market mutual funds from new rules being planned at the Securities and Exchange Commission.
“If much of this comes to pass it really threatens to wipe out this product,” Toomey said today in a speech to the U.S. Chamber of Commerce in Washington. “This is a problem for investors and borrowers who use this mechanism.”
The mutual funds industry is fighting new rules being prepared by the SEC staff, saying they would destroy the $2.6 trillion money fund business. Regulators have debated how to make the funds more stable since the September 2008 collapse of the $62.5 billion Reserve Primary Fund, which triggered an industrywide run by clients and helped freeze global credit markets.
Should the SEC proceed with its planned reforms, which would require approval by at least three of five commissioners to enact, Toomey said he “wouldn’t rule out introducing legislation that would push pack.”
Toomey echoed an argument made yesterday by the Investment Company Institute, a fund company trade group, that some regulators are out to kill money funds, aiming his comments at the U.S. Federal Reserve.
‘Exactly the Intent’
“The Fed has long sought to change the way money market funds operate,” said Toomey, who serves on the Senate Banking Committee. “In the process, of course, it would tend to drive a lot of money to banks, which is exactly the intent of some of the people in favor of this.”
The first of two SEC proposals would force money funds to abandon their traditional $1 share price, adopting a so-called floating net-asset value. Industry executives have fought the idea since it was raised in January 2009 by a think tank headed by former Federal Reserve Chairman Paul Volcker.
The second plan would require funds to build a capital cushion designed to absorb potential losses and hold back at least 3 percent of client withdrawals for 30 days.