According to the Treasury website, one of Geithner’s first acts as chair of the newly created Financial Stability Oversight Council has been to urge the SEC to take up the cause of regulating money market mutual funds once again. The SEC had been looking at these funds since the later days of the crisis, after their systemic role in providing short-term funding to banks and other corporations was revealed by the failure of one of the largest funds in the industry.
What is surprising here is that Geithner – who has been panned in two memoirs by former regulators as advancing an industry-friendly agenda – has now come out in favor of more regulation. Moreover, according to the letter his office released, he is pushing for the two measures the SEC considered – allowing for a variable share price (rather that the customary $1) and requiring capital buffers against a potential run-on-the-shadow-bank. The seriousness of Geithner’s proposal is evident in his recommendation that the SEC seek comment on a third approach:
Option three would entailimposing capital and enhanced liquidity standards, potentially coupled with liquidity fees or temporary “gates” on redemptions that may be imposed as an alternative to a minimum balance at risk requirement.
In other words, imposing hedge fund-style gates and other constraints on investors leaving funds that have been sold (and treated) as being equivalent to bank accounts.
I will certainly follow this in the coming days to learn more, but find it fascinating that Geithner chose this as his first regulatory push in the post-Dodd-Frank environment.