Letter on "Perspectives on Money Market Reforms"

Monday, June 18, 2012 - 8:00pm

The Honorable Tim Johnson
Committee on Banking, Housing,
and Urban Affairs
United States Senate
Washington, DC 20510

The Honorable Richard Shelby
Ranking Member
Committee on Banking, Housing,
and Urban Affairs
United States Senate
Washington, DC 20510

Dear Chairman Johnson and Ranking Member Shelby:

The U.S. Chamber of Commerce, the world’s largest business federation representing the interests of more than three million businesses and organizations of every size, sector, and region, believes that short-term financing and cash management are critical for businesses to operate and expand in a global marketplace. As the Senate Banking Committee holds a hearing titled “Perspectives on Money Market Reforms,” the Chamber would like to draw your attention to a study by Georgetown University Professor James Angel, Money Market Mutual Fund “Reform”: The Danger of Acting Now (Angel Report), that demonstrates the potential adverse consequences of imposing unwarranted money market regulation.

Money Market Funds (MMF) are an important vehicle that investors, businesses, and state and local governments rely on for short-term cash management. In fact, MMF’s comprise 40 percent of the commercial paper market. Following the 2008 financial crisis, the Securities and Exchange Commission (SEC) promulgated new regulations to increase the liquidity of MMFs to prevent run like scenarios. While the new MMF regulations appear to have achieved their purpose, particularly under the continued stress of the European sovereign debt crisis, SEC Chairman Mary Schapiro has stated that the SEC will engage in further rule making.

The Angel Report shows that now is not the time to engage in further MMF regulation because additional regulations could:

  • increase costs in a low yield environment that could drive many MMFs out of business;
  • increase borrowing costs, which could impede capital formation and cash management for businesses;
  • increase borrowing costs and restrict cash management for state and local governments; and
  • concentrate and increase the threat of systemic risk.

The Angel Report recommends that SEC engage in a comprehensive cost-benefit analysis so that the commission can appropriately assess the potential consequences of additional regulations upon investors, businesses, state and local governments and the overall economy.

The Chamber looks forward to working with the Committee on this issue to insure the vibrancy of American capital markets.

R. Bruce Josten

cc: Members of the Senate Committee on Banking, Housing, and Urban Affairs
Members of the House Committee on Financial Services