Top US regulators pledge to seek reforms for money markets

WASHINGTON – Top regulators pledged Friday to push reforms in a key corner of U.S. financial markets that the Federal Reserve and Treasury had to rush to support after it was roiled during the coronavirus outbreak in the spring of 2020.

Members of the Financial Stability Oversight Council discussed the reforms aimed at the so-called short-term funding markets, which include money market mutual funds holding trillions of dollars.

The oversight council is an interagency group headed by Treasury Secretary Janet Yellen, who said the 2020 crisis prompted “extreme policy interventions” by the Federal Reserve and Treasury to restore order in the market.

Federal Reserve Chair Jerome Powell, also a member of the council, said the 2020 crisis was triggered by a “dash for cash” that prompted the Fed to step in with back-up financing to calm the turmoil.

“Rapid redemptions at money market funds resulted from and in turn exacerbated the liquidity pressures,” he told the panel.

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Powell said after the Fed created a Money Market Mutual Fund Liquidity Facility with $10 billion in backing from the Treasury Department, the “turmoil subsided, conditions in short-term funding markets improved and access to credit increased.”

The council received a closed-door briefing from the staff of the Securities and Exchange Commission on the comments it has collected on what reforms need to be pursued to make short-term funding markets more resilient at times of financial crisis.

SEC Chairman Gary Gensler told the group during its open meeting that he has directed SEC staff to prepare recommendations that can be voted on by the five-member SEC. Yellen said she fully supported the efforts by the SEC to reform the current system.

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