These funds, which seek to maintain a share price of $1, are thought to be a highly secure investment, on par with bank deposits. However, the high-profile Reserve Primary Fund "broke the buck" at the height of the financial crisis after taking substantial losses in the bankruptcy of Lehman Brothers, setting off a run on the multitrillion market that settled only when the government stepped in to guarantee the investments.
Schapiro said that danger still remains today, warning that investors have "a false sense of security" of the funds, especially considering that the bailout law passed by Congress prohibited a similar government guarantee in the future.
"Today, the money-market fund industry and, by extension, the short-term credit market, is working without a net," she cautioned.
She said the SEC was looking at either allowing the $1 value of money market fund shares to float with the market, or requiring capital requirements to serve as a cushion for when the funds hit hard times. She noted that both proposals have been met by "the hue and cry" of the industry.
Schapiro also threw some jabs at Republican lawmakers that have slowed budget boosts to the agency requested by the White House. She said the SEC was being tasked with a job that outmatched its resources when she came back on board in 2009.
"When I returned to the SEC, I saw how much the staff was being asked to do, and how little they were being given to do it," she said.
She added that the agency has enjoyed an "overdue ... modest funding turnaround" in recent years, driven by the expanded responsibilities handed it by the Dodd-Frank Wall Street reform law.