The Financial Stability Oversight Council, Financial Stability Board, and Securities and Exchange Commission still fear the systematic risks posed by potential runs on money market funds. Seeing money funds as unfinished business from the 2008 financial crisis, the FSOC and FSB have floated some fairly serious structural changes to that industry. It is not clear, however, that the cures they propose are not potentially more systematically risky than the status quo.  SEC Commissioner, Luis Aguilar, typically a champion of more regulation designed to protect investors, has raised the alarm regarding a potential unintended consequence of additional money market reforms.  It is Aguilar who threw the spanner in the in the plans of former SEC Chairman, Mary Schapiro, to propose a slate of structural regulations for money market funds. He did so over this very issue. Aguilar worries that money fund assets will migrate to an opaque, unregulated market as a result of structural changes to money market funds.  He feels that the earlier rounds of regulatory reform for money market funds were a resounding success, making money market funds one of the most transparent financial instruments for both regulators and investors.  Further reform proposals, however, could steer funds into markets that are not as open to the SEC, ultimately making them less regulated.

Both the President's Working Group on Financial Markets and the Financial Stability Oversight Council have consistently called for the SEC to pursue additional reforms to address structural vulnerabilities in [money market funds], including unanimous recommendations in the [FSOC's] 2011 and 2012 annual reports. The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the Council both the responsibility and the authority to take action to address risks to financial stability if an agency fails to do so.  (emphasis added) Accordingly, I would like the [FSOC] to consider taking a series of steps to address this challenge. With Treasury Secretary Timothy Geithner and the Financial Stability Oversight Council taking the lead on further reforms to money market mutual funds, Geithner and the FSOC will be testing the limits of the super-regulatory powers granted by the Dodd-Frank Act.  Section 12(a)(1) of the Dodd-Frank Act set forth the essential duties and powers of the FSOC. Among these are: identifing systemically important financial market utilities and payment, clearing, and settlement activities (as that term is defined in title VIII); and making recommendations to primary financial regulatory agencies to apply new or heightened standards and safeguards for financial activities or practices that could create or increase risks of significant liquidity, credit, or other problems spreading among bank holding companies, nonbank financial companies, and United States financial markets. As his September 27, 2012 letter to the FSOC makes clear, Geithner intends for the FSOC to use its Section 12(a)(1) power to bring money market funds into the ambit of the Dodd-Frank Act by declaring them systematically important nonbank financial companies.