American Bankers Association Urges SEC to Consider Consequences of Money Market Fund Reforms

As the Securities and Exchange Commission (SEC) contemplates reforms to strengthen the transparency and resiliency of money market funds, the American Bankers Association (ABA) has issued a warning that any significant changes could have far-reaching consequences for bank fiduciary and non-fiduciary accounts. The proposed reforms, aimed at addressing volatility in money market funds during the early days of the pandemic, could impact the availability of these funds to bank customers and require costly and operationally difficult changes to existing systems. The ABA is urging the SEC to carefully consider the potential effects of these reforms, particularly on the use of government money market funds as a stable store of value in bank sweep programs.

Key Takeaways:

• The American Bankers Association (ABA) has submitted a comment letter to the SEC on proposed reforms to money market funds, urging caution on significant changes.
• The proposed reforms aim to strengthen the transparency and resiliency of money market funds in response to volatility during the pandemic.
• The ABA is concerned that changes to the liquidity fee and redemption gate mechanism, swing pricing, and disclosure requirements could have significant costs and operational impacts on bank fiduciary and non-fiduciary accounts.
• The association is specifically concerned about the potential for negative interest rates and the need for government money market funds to switch to floating net asset value (NAV) in such cases.
• The ABA notes that bank sweep programs for fiduciary and custody accounts are built on the assumption of stable share prices and that changes to accommodate negative interest rates would be costly and operationally difficult.
• The association also raises concerns about the cost and difficulty of implementing swing pricing and urges the SEC to consider alternative frameworks, such as liquidity fees.

Statistics:

• None

Sources:

• American Bankers Association, comment letter to the Securities and Exchange Commission (SEC) (no specific date mentioned).