SEC attempts to reform the money market industry are running into opposition from corporate treasurers. Maria Sapan from Securities Technology Monitor writes:
The Securities and Exchange Commission has proposed rules that would revamp the $2.6 trillion U.S. money market fund industry, arguing it remains a risk to the financial system. Last month, [Thomas C. Deas, Jr., the treasurer of chemical company FMC Corp and chairman of the National Association of Corporate Treasurers] testified before a House subcommittee that the reforms – such as floating the funds’ net asset value or imposing new capital requirements – would “have a significant negative impact on the ongoing viability of these funds, and also adversely affect the corporate commercial paper market.”
Money market funds are effectively involved in maturity transformation — borrowing short and lending long — which is a function of banks. Maturity transformation is vulnerable to bank runs in times of uncertainty, where depositors demand repayment and borrowers are unable to comply because of liquidity pressures. My view is that if you want to perform the functions of a bank, you need to be registered as a bank, with the same reserve requirements as other banks, and supervised by the Fed. Avoiding these requirements may provide cheaper sources of credit to large corporates, but at the cost of increased risk to the entire economy.
This is rich, coming from defenders of banks that where estimated to be leveraged at 33 -1 at the time Lehman went under. Obviously Maria Sapan and the Securities Technology Monitor are sponsored by Goldman, JP Morgan, Citigroup and co. and are doing their best to ensure they maintain a monopoly of money markets..
Exempting money markets from bank regulation would leave systemic vulnerability. They should be regulated in the same manner. Then we need to tackle TBTF banks before the issue grows cold — never waste a good crisis.