SEC Division of Risk, Strategy, and Financial Innovation Special Report on Money Market Funds (Interesting Stuff) (with Lofchie Comment)

This report addresses the questions posed by Commissioners Aguilar, Paredes, and Gallagher in a September 17 memo to Chairman Schapiro and Director Lewis regarding money market funds. The Commissioners’ specific questions can be grouped into three categories:

(i) The first category addresses the causes of investor redemptions of prime money market fund shares and purchases of Treasury money market fund shares during the 2008 financial crisis. (ii) The second category of Commissioner questions covers the efficacy of the 2010 money market fund reforms in three general areas: fund characteristics, the events during the summer of 2011 and an analysis of the potential effect of the reforms on money market funds in 2008 had they been in place. (iii) The third set of questions relates to how future reforms might affect the demand for investments in money market fund substitutes and the implications for investors, financial institutions, corporate borrowers, municipalities, and states that sell their debt to money market funds.

Comments: Submit comments to this report here.

Lofchie Comment: It is a shame that not until several years after the financial crisis is the government beginning to produce some meaningful studies of events surrounding the crisis. One cannot help but feel that financial regulation would be in a much better position had such studies been a more immediate priority. Hopefully, economists, market participants and regulators can begin to weigh in on this study, and others like it, so that the topic of financial regulation can be discussed again as if it were an area where parties might rationally disagree rather than as a struggle between goodniks and no-goodniks (where I am a legal counselor to the forces of the latter).

Click here to view the report in full (links externally to SEC website).See also: Commissioner Aguilar's Statement on Money Market Funds as to Recent Developments (December 5).