Shouldn’t money market funds be regulated like banks?
Money market funds are not banks. Banks use leverage; hold long-term, nontransparent investments, such as mortgages or business loans; and have substantial off–balance sheet commitments. Banks are required to hold capital to protect depositors, the Federal Deposit Insurance Corporation, and other creditors from losses. Money market funds are highly restricted by SEC regulation on the maturity and credit quality of their securities, and the report’s recommendations would further restrict holdings. Finally, capital requirements can protect against one-off losses from securities in a fund’s portfolio, but provide little protection against broad market events such as those experienced in the fall of 2008.
