Corker urges renewed work on money market fund reform

ADVERTISEMENT
Corker echoed Schapiro's concerns about the funds in his letter, saying runs remain a "real risk" in future times of financial hardship. If those runs were to occur, the government would face a difficult choice: allow the funds to collapse, largely to the detriment of retail investors after institutional ones made a quick exit, or engage in another public bailout of private enterprise.

Schapiro has been a leading voice in calling for tougher restrictions on money market funds, as she has argued that corner of financial markets remains susceptible to damaging runs and needs a better backstop. At the height of the financial crisis in 2008, the government had to step in and guarantee the funds after a run began. She has not been alone in airing that concern, echoed by other top regulators, including Federal Reserve Chairman Ben Bernanke.

But in August, the SEC had to call off a vote on publishing a proposed rule to overhaul regulation of the industry after Schapiro failed to garner the three votes on the five-member panel necessary to advance it. Corker is now asking the SEC to go back to the drawing board, expressing confidence "common ground" could be found on a new approach that could garner enough support.

Meanwhile, a former top financial regulator is calling on another regulatory body to step in where the SEC came up short. Sheila Bair, who headed the Federal Deposit Insurance Corporation during the crisis, said Friday the Financial Stability Oversight Council (FSOC) should step up to the plate on money market funds.

Now chairwoman of the Systemic Risk Council, a nonpartisan body under the Pew Charitable Trusts, Bair said the FSOC should bring all its powers to bear on regulating money market funds, including formally recommending the SEC move forward on Schapiro's stalled proposal.

The FSOC was created by the Dodd-Frank financial reform law, and gathers top regulators in one place to oversee broad threats to the financial system as a whole. Bair argued the FSOC could identify money market funds as a threat to the financial system, which could force the SEC to impose heightened regulations.

"Given the current impasse at the SEC, we believe the FSOC should use the full range of authorities given it under Dodd-Frank to effectuate needed reforms," she said. "Clearly the SEC is best positioned to address this issue most efficiently, but, if the Commission continues to be unwilling to take the necessary action, FSOC must step in.”