The Committee on Capital Markets Regulation today submitted two comment letters to the Financial Stability Oversight Council (“FSOC”).

The first letter argues that certain financial institutions, including asset managers and traditional insurers, should not be designated as “non-bank systemically important financial institutions,” or “non-bank SIFIs,” because their failure would not provoke a chain reaction of failures of other financial institutions. In addition, the letter opposes the designation of particular money market mutual funds (“MMMFs”) or MMMF complexes as SIFIs, since the risk of contagion posed by such funds is an industry wide problem not one of individual funds or complexes.

The second letter addresses FSOC’s recommendation that the SEC require the adoption of a floating net asset value (“NAV”) to stem contagion arising from MMMFs. It is the Committee’s position that whatever other virtues the floating NAV proposal may have, it would not limit the systemic risk of contagion. The risk of contagion from MMMFs is a real problem, but according to Hal S. Scott, Director of the Committee, “SIFI designation is not the answer. The Committee is currently studying possible approaches to reduce the risk of contagion, from money market funds and more generally, and will at a later date offer its concrete recommendations in this regard. We regard the floating NAV proposal as a false palliative to alleviate the dangers of contagion.”

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The Committee on Capital Markets Regulation is an independent and nonpartisan 501(c)(3) research organization dedicated to improving the regulation of U.S. capital markets. The Committee’s Director is Hal S. Scott, Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School.

 

http://www.capmktsreg.org/wp-content/uploads/2013/02/FSOC.floating.NAV_.comment.ltr_.pdf

http://www.capmktsreg.org/wp-content/uploads/2013/02/FSOC.non-bank.SIFI_.comment.ltr_..pdf