If
anything is calculated to cause despair about the prospects of making
the financial system safer, it is the failure of the Securities and
Exchange Commission to tame the $2.6tn US money market fund industry. Mary Schapiro, the SEC chairman, has tried her best but she was stymied last week.
The stakes are so high that reform now needs to be taken out of the hands of the SEC’s commissioners, who have shown themselves to be fatally susceptible to industry lobbying, and led by the US Treasury and Federal Reserve. Failing that, international regulators should limit the dependence of banks on these shaky foundations.
What are the chances of the other US authorities succeeding where the SEC has failed? Sadly limited, given the poisonous climate in Washington, acrimony over the Dodd-Frank Act and the presidential election. These form dispiriting obstacles to reform of the shadow banking system, of which money market funds form one of the oldest parts.
Reform of money market funds ought to be an open-and-shut case, given the events of 2008. The first evidence of the distress triggered by the Lehman Brothers collapse was when the Reserve Primary fund “broke the buck” because it held $785m of Lehman securities. That led to a rapid run on its deposits and official intervention to stop other funds toppling.
Read more: http://www.ft.com/intl/cms/s/0/826e5056-f120-11e1-a553-00144feabdc0.html#axzz256inigAO
The stakes are so high that reform now needs to be taken out of the hands of the SEC’s commissioners, who have shown themselves to be fatally susceptible to industry lobbying, and led by the US Treasury and Federal Reserve. Failing that, international regulators should limit the dependence of banks on these shaky foundations.
What are the chances of the other US authorities succeeding where the SEC has failed? Sadly limited, given the poisonous climate in Washington, acrimony over the Dodd-Frank Act and the presidential election. These form dispiriting obstacles to reform of the shadow banking system, of which money market funds form one of the oldest parts.
Reform of money market funds ought to be an open-and-shut case, given the events of 2008. The first evidence of the distress triggered by the Lehman Brothers collapse was when the Reserve Primary fund “broke the buck” because it held $785m of Lehman securities. That led to a rapid run on its deposits and official intervention to stop other funds toppling.
Read more: http://www.ft.com/intl/cms/s/0/826e5056-f120-11e1-a553-00144feabdc0.html#axzz256inigAO
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