Photo: Sparktography via Flickr
The Wall Street Journal has an article today reporting on the SEC’s plans to increase regulation on money market funds.The $2.7 trillion dollar industry has previously been lightly regulated and three years after the collapse of Lehman Brother’s lead to widespread investor panic.
Felix Salmon says the regulatory approach boils down to three items:
Firstly, they’ll be forced to raise capital. Secondly, depositors won’t be able to withdraw all of their money at once, just 95% of it. The last 5%, they’ll have to wait 30 days. And thirdly, the net asset value should be allowed to float, rather than being fixed at $1.
Since money market funds essentially act like banks but don’t have any capital requirements and have offer investors a fraught combination of unlimited liquidity with fixed asset values, these changes seem like fairly straightforward changes.
So how is the CEO of one of the largest money market fund managers with $255.9 billion in AUM, Federated Investors, reacting?
Not well. Federated CEO J. Christopher Donahue told the WSJ that he would sue the SEC if the regulation “interferes with his firm’s ability to do business.” In case there was any doubt remaining where he stood on the issue, he added:
“We’re going to do everything in our power to attack it…The generosity of giving you the choice of which way to die is really not much of a choice…”
That’s about as full-blooded a response as you’ll see from a CEO. Now, the ball is in the court of the SEC Chairwoman Mary Schapiro and her four fellow commissioners on how to move forward, if at all, with the proposed regulations.