In a letter (the “Geithner Letter”), to the members of the Financial Stability Oversight Counsel (“FSOC”), Treasury Secretary Geithner started the next round of debate over subjecting money market funds to further regulatory reforms. In the aftermath of SEC Chairman Schapiro’s announcement that “a majority of the Commission … will not support a staff proposal to reform the structure of money market funds”, Secretary Geithner asked FSOC “to consider taking a series of additional steps to address this challenge.” He characterized these steps as a “path forward to protect investors and the economy.” This client alert discusses each of the steps the Geithner Letter urged FSOC to take, and why these steps will probably not lead to the structural reform of money market funds.

What Is FSOC?

FSOC was created by the Financial Stability Act of 2010, which is Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Action (the “DFA”). The voting members of FSOC are the Treasury Secretary (who serves as Chairman of the Council), the Chairmen of the Federal Reserve, the Securities and Exchange Commission (the “SEC”), the Commodity Futures Trading Commission (“CFTC”), the Federal Deposit Insurance Corporation and the National Credit Union Administration Board, the directors of the Bureau of Consumer Financial Protection and the Federal Housing Finance Agency, the Comptroller of the Currency and an independent insurance expert appointed by the president. FSOC also has five nonvoting members.

The purposes of FSOC are:

(A) to identify risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace;

(B) to promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the Government will shield them from losses in the event of failure; and

(C) to respond to emerging threats to the stability of the United States financial system.

Please see full Alert below for further information.