Speech by SEC Chairman:
Remarks Before the Money Market Funds and Systemic Risk Roundtable
Chairman Mary L. Schapiro
Securities and Exchange Commission
May 10, 2011
Good afternoon. I am pleased to open today’s roundtable discussion on Money Market Funds and Systemic Risk. And I am particularly pleased to be joined by representatives from the Financial Stability Oversight Counsel, as well as my fellow SEC Commissioners. This multi-regulator presence reflects the broad level of focus and attention that money market funds garner – and highlights their importance in the overall financial landscape.
Money market funds catapulted into the public consciousness in September of 2008 – in the midst of the market crisis. It was then that the Reserve Primary Fund broke the buck, and we subsequently witnessed a run on institutional prime money market funds.
Regulators and investors alike, were once again reminded of the tremendous significance of the role of money market funds in the financial system. During the week of September 15, 2008, investors withdrew approximately $310 billion from prime money market funds, with the heaviest redemptions coming from institutional funds. This represented 15 percent of those funds’ assets.
The run was halted by the announcement of the Treasury Money Market Fund Guarantee Program, which temporarily guaranteed money market fund account balances as of Sept. 19, 2008. In addition, government facilities were put in place to provide liquidity to the commercial paper market in which prime money market funds invest.
The SEC and other federal financial regulators worked closely and collaboratively on these programs. And we have worked closely and collaboratively since, in order to wind down the programs and focus on regulatory reforms to mitigate the systemic risk posed by money market funds.
The most significant of those regulatory changes to date include the SEC’s reforms to our money market fund regulations. Through this effort, we tightened credit quality standards, shortened weighted average maturities, and for the first time imposed a liquidity requirement on money market funds. Those reforms, which we adopted in February 2010, have been in effect for nearly a year.
In addition, we adopted new reporting requirements that provide for a comprehensive and searchable database of money market fund portfolio information. This database enables us to monitor trends in money market funds’ holdings and risk profiles.
Complementing these developments, we have provided investors access to money market funds’ shadow NAV information. This information is publicly reported on a monthly basis, with a 60 day lag. The public shadow NAV information is expected, in part, to help sensitize investors to the fact that money market fund shares are interests in pools of investments that fluctuate in value, although those fluctuations generally are small.
Despite all of this, more needs to be done to better protect money market funds – and the broader financial system – from the destabilizing risk that can result from a broad money market fund run. I think everyone agrees that our country should never again be in the position of having to choose between providing support to private market participants, including money market funds, or risking a breakdown of the broader financial system.
To further the public dialogue on this important issue, the President’s Working Group on Financial Markets issued a Report on Money Market Fund Reform Options. The SEC requested public comment on the options identified in the report, and received approximately 80 letters. The letters, which were thoughtful and substantive, reflected a variety of views.
The issues surrounding money market funds are significant. And the variety of perspectives that exist regarding how best to moderate their run risk requires the kind of in-depth dialogue that can only occur by getting some of the best minds in one room to engage in a free exchange of ideas. That is why I am so thankful that our esteemed panelists have given of their time and been willing to travel across the country and even across the Atlantic to join us this afternoon.
I look forward to a robust dialogue, and a healthy exchange of ideas – and the perspectives of a broad range of current regulators. Also, former regulators Paul Volcker and John Hawke represent a respected long-term perspective, and Paul Tucker, Bank of England Deputy Governor, provides an important international focus. Thank you to the current and former regulators and all of our panelists for your participation today.
And I would be remiss if I did not acknowledge Chairman Sheila Bair, who yesterday announced her official departure date from the FDIC. Chairman Bair has been an extraordinary public servant who has worked tirelessly to reduce risks in our financial system. I will greatly miss working with her.
I will now turn it over to Eileen Rominger, Director, and Bob Plaze, Associate Director, of the SEC’s Division of Investment Management, who will serve as moderators for today’s discussion.