Money-market mutual funds would be forced to create capitalbuffers equaling 1 percent to 3 percent of assets to protectagainst losses under a plan now favored by the U.S. Securities andExchange Commission, according to three people briefed on theregulator's deliberations.

Top SEC officials, seeking to make money funds safer, prefer theplan over another capital buffer idea crafted by FidelityInvestments and calls to eliminate the funds' stable share price,said the people, who asked not to be identified because theyweren't authorized to speak publicly. The concept is based onrecommendations submitted to the agency in January by universityeconomists known as the Squam Lake Group.

“Some variant of the Squam Lake proposal would be a significantimprovement that would reduce the risk that money market funds posesystemic problems in the future,” Eric Rosengren, president of theFederal Reserve Bank of Boston and a frequent critic of the riskposed by money funds, said yesterday in an e-mailed statement.

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