AFR Statement on Final SEC Rule on Money Market Funds

We believe that the reforms adopted by the SEC today are not sufficient to properly address the threat of investor runs on money market funds and the systemic risk that could accompany such runs. In the case of redemption restrictions such as gates and liquidity fees, elements of the new rules could actually increase systemic risk. The rules do have some positive elements, including the establishment of a floating net asset value for institutional funds, which should reduce some of the advantages of early redemption and make investors more aware that money market funds pose real market risks and should not be viewed as a pure cash management product. But overall, the reforms finalized today appear inadequate to address the issues revealed during the 2008 financial crisis, when investor runs on money market funds triggered a massive public bailout of the sector. We expressed these views in our comment of September 17^th, 2013 on the SEC’s proposed rule.

In the days and weeks ahead we will examine other elements of the final rule to see if they make progress in addressing systemic risks. We encourage the SEC to work closely with other regulators, including the Financial Stability Oversight Council and the Federal Reserve, to address remaining systemic risks related to money market funds. We also believe that improvements in the regulation of bank funding and wholesale funding markets more generally can address risks related to money market funds.