U.S. Money Market Funds and the European Sovereign Debt Crisis


The financial press recently reported that the U.S. Securities and Exchange Commission (“SEC”) will be proposing in the coming weeks new restrictions on U.S. money market funds (“money funds”), including capital require-ments and a “liquidity fee” that would hold back a portion of a client’s account for 30 days in the event of a redemption. Explaining the need for such proposals, SEC Chairman Mary Schapiro was quoted as saying that “Money market funds remain susceptible to runs and to a sudden deterioration in quality of holdings, and we need to move forward with some concrete ideas for proposals to address these structural risks.” These proposals will be in addition to the extensive reform of money fund regulation that occurred in early 2010.

Although the SEC will likely propose new regulations for money funds, the ability of money funds to operate successfully through the European sovereign debt crisis calls into question the need for additional regulatory measures. In June 2011, when news intensified regarding a potential Greek default, regulators and policymakers immediately identified money funds as being prone to risks due to their exposure to European banks that could be impacted by the events in Greece.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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