U.S. Chamber Report Examines Stability, Transparency of Money Market Mutual Funds

Analysis Shows 2010 SEC Reforms Are Working

WASHINGTON, D.C.—The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) released a white paper titled, “Money Market Funds Since the 2010 Regulatory Reforms: More Transparency, Increased Liquidity, and Lower Credit Risk” at an event in Washington today.  The paper analyzes how money market mutual funds (MMMFs) performed leading up to the 2008 financial crisis and after the implementation of additional regulations in 2010, including the EuroZone crisis which followed a year later.

Authors Dr. David W. Blackwell, Professor of Finance at the University of Kentucky, Dr. Kenneth R. Troske, Professor of Economics at the University of Kentucky, and Dr. Drew B. Winters, Chair in Finance at Texas Tech University, analyzed the changes made to regulations of MMMFs in 2010 and found that:

• MMMFs are now more liquid and better able to handle a significant change in redemptions;
• Dramatically increased transparency and disclosure frequency allows investors to now obtain timely, accurate data on the risk of any fund in which they invest;
• Overall, there is no evidence that the CP market experienced a “freeze” despite substantial redemptions in 2011;
• Funds experienced net-inflows during the Summer of 2011, as both institutional and retail investors sought the liquidity and resilience of MMMFs;
• Based on existing research, there is no evidence that any retail investor was affected by a run on MMMFs;
• The variance in monthly redemptions means a ‘one-size-fits-all’ rule limiting redemptions will be extremely difficult to adopt.

“Regulators are basing their assumptions largely on what happened in 2008, but it is imperative that any further MMMF reforms be informed by the effects of the 2010 reforms,” said David Hirschmann, president and CEO, of CCMC.  “For more than a year, the Chamber has asked regulators to define the specific remaining problems that they hope to solve before proposing additional reforms.  Instead, they have repeatedly floated solutions that would dramatically reduce a vital source of short-term funding for businesses, cities and states.  Regulators should adopt a ‘first do no harm’ approach to further reforms.”

Since its inception in 2007, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.