The stakes in the debate over money market funds (MMFs) — and the risk they pose to systemic risk — escalated further with the SEC’s recent announcement that it lacks votes to issue a public proposal. Gridlock on the five-member commission, it appears.
The issue is far from resolved, however, with a growing chorus seeking strong action. Another voice joined in last week, when New York Fed Chair William Dudley cautioned that the money market fund industry is a smoldering systemic risk, potentially of massive proportions.
In terms similar to the statement by Sheila Bair, chair of the CFA Institute co-sponsored Systemic Risk Council, Dudley maintains that prompt actions are needed. Shapiro’s recommendations are a good place to start. Whether converting the industry to a floating NAV, like the rest of the mutual fund industry, is too radical remains to be seen.
Despite this election-year delay, action is clearly needed. Let’s just hope it’s not too little, too late. What are your views?