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The WSJ canada goose article is a bit hard to Canada Goose

Posted on 12 June 2014 by Vincent

The SEC gets closer to regulating money

canada goose clearance Banks need to be regulated. Depositors can be expected to do due diligence on their financials, so you need deposit insurance. And in turn, the government canada goose factory sale which provides the deposit insurance needs to make sure that the banks have certain minimum levels of capital. Canada Goose sale Otherwise, the insurance fund will go bust in no time.

Markopolos eyes a fortune from BNY whistleblowing

canada goose coats on sale All of this is wholly uncontroversial until you get to the subject of money market funds. At heart, as they exist today, MMFs are banks. They borrow money which is repayable on demand, and they lend it out for fixed terms, taking a certain amount of credit Canada Goose Parka risk while doing so. If their borrowers fail to repay the canadian goose jacket money, or if their depositors all Canada Goose Coats On Sale demand their money back at once, then they be left needing to be bailed out.

canada goose black friday sale Paul Volcker, in September, gave a speech laying out the problem with MMFs very clearly:

cheap Canada Goose Started decades ago essentially canada goose coats as regulatory arbitrage, money market funds today have trillions of dollars heavily invested in short term commercial paper, bank deposits, and notably canada goose store recently, European banks.

canadian goose jacket Free of capital constraints, official reserve requirements, and deposit insurance charges, these MMMFs are truly hidden in the shadows of banking markets. The result is to divert what amounts to demand deposits from the regulated banking system. While generally conservatively managed, the funds are demonstrably vulnerable in troubled times to disturbing runs, highlighted in the wake of the Lehman bankruptcy after one large fund had canada goose uk shop to suspend payments. The sudden impact on the availability of business credit in the midst of the broader financial crisis compelled the Treasury and Federal Reserve to provide hundreds of billions of dollars by resorting to highly unorthodox emergency funds to maintain the functioning of markets.

canada goose clearance sale Recently, in an effort to maintain some earnings, many of those funds invested buy canada goose jacket heavily in European banks. Now, without the backstop official liquidity, they are actively withdrawing those funds adding to the strains on European banking stability.

Canada Goose Jackets The canada goose jacket time has clearly come to harness uk canada goose money market funds in a manner that recognizes both their structural importance in diverting funds from regulated banks and their destabilizing potential. If indeed they wish to continue to provide on so cheap canada goose uk large a scale a service that mimics commercial bank demand deposits, then strong capital requirements, official insurance protection, and stronger official surveillance of investment practices is called for. Simpler and more appropriately, they should be treated as an ordinary mutual funds, with redemption canada goose clearance value reflecting day by day market price fluctuations.

canada goose coats Wonderfully, it seems that the SEC has been listening. The WSJ canada goose article is a bit hard to Canada Goose Outlet follow, Canada Goose Jackets but the SEC seems to have a three pronged approach to regulating these beasts.

canada goose deals Firstly, they be forced to raise capital. Secondly, depositors won be able to withdraw all of their money at once, just 95% of it. The last 5%, they have to wait 30 days. And canada goose clearance sale thirdly, the net asset value should be allowed to float, rather canada goose coats on sale than being fixed at $1.

buy canada goose jacket cheap What are the chances of all of this happening? Zero. Reading between the lines, it seems that the SEC is making a big ask, and will probably be willing to compromise: even Volcker painted reform as buy canada goose jacket cheap a choice between more capital and a floating NAV, rather than a both and approach.

buy canada goose jacket But just forcing MMFs to raise capital will be a huge and important step forwards. canada goose uk outlet Not that it going to be easy:

Canada Goose Parka J. Christopher Donahue, president and chief executive of Pittsburgh based Federated Investors Inc., which manages $255.9 billion of money fund assets, said he plans to sue canada goose uk black friday the SEC if the new regulation interferes with uk canada goose outlet his firm ability to do business.

going to do everything in our power to attack it, Mr. Donahue Canada Goose Online said of the possible regulations.

Canada Goose online This is kinda hilarious, given the against Volcker:

Canada Goose sale With 30 million investors and $2.6 trillion in assets, MMFs are hardly unseen, hidden or surreptitious. Not only are they subject to significant control, examination and oversight by the Securities and Exchange Commission, with detailed prospectus requirements for the issuance of their shares, demanding reporting requirements, regular surveillance, and substantial requirements as to liquidity, asset quality and maturities, but they must publicly and frequently disclose the contents of their portfolios, on their websites and in regulatory filings down to the individual security level.

Canada Goose Outlet In other words, the reason that MMFs need no further regulation is that they already regulated by the SEC. On the Canada Goose online other hand, if the SEC cheap Canada Goose itself wants to step up its regulation of MMFs, then they sue it.

canada goose The reality is that MMFs are a monster source of systemic risk in the US, and the SEC is absolutely right to want to get some kind of a grip on them. They need to make a choice: are they mutual funds, where investors risk taking losses? Or are they banks, which need to be regulated by the government? Up until now, they managed to have their canada goose black friday sale cake and eat it but those times must come to an end. Here hoping Mary Schapiro sticks to her guns on this one, in the face of what is sure to be extremely stark opposition.

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