Fed District Banks Back Tougher Money-Fund Oversight

Officials cite a move to floating net-asset value as one alternative.

The presidents of all 12 Federal Reserve regional banks backed tougher oversight of some money-market mutual funds to strengthen the financial system, saying one alternative is to replace the fixed $1 share price with a market-based value.

The Fed’s regional bank chiefs said in a joint letter to the Financial Stability Oversight Council that their recommendations focus mainly on prime funds, which are those that can buy corporate debt, because they are subject to the greatest credit risk.

Wider Run

Regulators have worked to impose tighter restrictions on money funds since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. Its failure, caused by losses on debt issued by Lehman Brothers Holdings Inc., triggered a wider run on prime funds that helped freeze global credit markets.

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