Geithner's Money Fund Push Sparks Industry Outcry

Treasury Secretary outlines three options for overhauling funds, including a 3% capital buffer.

U.S. Treasury Secretary Timothy Geithner yesterday urged the Securities and Exchange Commission to pursue new rules for money-market mutual funds, triggering fresh opposition from industry leaders who had beaten back similar proposals and are pursuing a weaker overhaul.

Geithner, heading a Washington meeting of the Financial Stability Oversight Council, a group formed by the Dodd-Frank Act to address systemic financial risks, won unanimous approval for a draft recommendation to the SEC spelling out three ways to overhaul the $2.6 trillion industry. A new option would require capital buffers of as much as 3 percent of assets, while two other solutions he offered were opposed earlier by the fund industry and rejected in August by an SEC majority.

Industry Plan

Fund executives fought the Schapiro plan, saying it would destroy the product’s attraction for investors and utility for borrowers. They argued that capital buffers would be either too small to be effective or too large to afford, and that investors would reject a floating share price and withdrawal holdbacks.

‘Shadow’ NAV

The proposal also called for funds to disclose their weekly liquidity on a daily basis and their per-share market value, or “shadow” net asset value, on a weekly basis with a five-day lag, the people said. Current rules force funds to disclose their shadow NAV monthly with a 60-day lag.

Bailout Restrictions

The panic abated only after the Treasury guaranteed shareholders against default for a year and the Fed began financing the purchase of fund holdings. The Treasury and Fed have since been restricted from repeating those bailouts.

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