ABA: Maintain Prime, Tax-Exempt MMFs
Today, we quote from the American Banker Association's comment letter to the SEC in response to the "President's Working Group Report." It tells us, "The American Bankers Association (ABA) appreciates the opportunity to comment on potential reforms for certain money market funds (MMFs) raised in the December 2020 report of the President's Working Group on Financial Markets. The Securities and Exchange Commission (SEC) is requesting comments on these potential reforms to improve stability of MMFs specifically and the short-term funding markets, generally. Banks and their affiliates interact with prime MMFs in numerous ways, including as investors on behalf of bank customers, as sponsors of MMFs, and issuers of certificates of deposit and commercial paper in which prime MMFs invest. In addition, as participants in the short-term funding markets, banks have a great interest in maintaining and improving general market stability. We understand that the SEC is working in conjunction with other federal financial regulators through the President's Working Group (PWG) and Financial Stability Oversight Council (FSOC) on MMF reforms, as well as with international standard-setting bodies, such as the Financial Stability Board (FSB) and the International Organization of Securities Commissions. We make these comments for the broader audience, while acknowledging the SEC's focus on their regulatory authority over MMFs. Money market mutual funds are important cash providers to global funding markets. We agree with the PWG that, 'the orderly functioning of short-term funding markets is essential to the performance of broader financial markets and our economy more generally.' As participants in these markets, ABA member banks appreciate the work the SEC is doing to make markets more resilient through times of stress. We note that throughout the COVID-19 pandemic, including during the market turmoil in March 2020, banks have been a reliable source of funding and liquidity for their customers, the markets, and the U.S. economy. Given this source of financial strength, additional regulation for the banking sector to address concerns regarding MMFs would be inappropriate and unnecessary. Similarly, the SEC's evaluation and reform efforts should not focus on government MMFs, which performed as needed and expected in late March 2020." The letter continues, "In designing potential reforms, ABA urges the SEC to opt for rules that would maintain prime and tax-exempt municipal MMFs. Although less popular after the 2016 reforms, these MMFs continue to play an important role for stability in our financial markets and as an investment opportunity for institutional and retail investors. These MMFs offer investors an alternative to government MMFs and bank deposits with potentially higher yields, while also offering a liquid option that is highly desired. These MMFs, similar to government MMFs, are transparent to investors, in particular providing key information on net asset flows and portfolio holdings. Lastly, prime and tax-exempt MMFs are large purchasers of commercial paper and municipal securities respectively, which are important sources of funding for many corporations and municipal governments. With respect to tax-exempt MMFs, further restrictions on these funds unnecessarily may limit municipal government sources of capital for infrastructure and other needs." Finally, ABA adds, "The reforms outlined in the PWG Report span from potential changes to the SEC's existing regulatory framework to novel measures that are either within the SEC's authority or that of other policy makers. Many of the novel reforms would likely impose significant costs on the administration of prime and tax-exempt municipal funds or make them so unattractive to investors that these funds may no longer be viable. Therefore, we urge the SEC to consider the following amendments to the existing rules before taking more far-reaching and costly measures that may eliminate the availability of these funds."
