Proposed regs could kill off money fund industry: Professor

Money market reforms under consideration by regulators would increase borrowing costs for businesses and governments and ultimately add tens of billions of dollars in annual expenses for consumers and taxpayers, according to an academic's analysis paid for by the U.S. Chamber of Commerce and released on Monday. Georgetown University professor James Angel said the “immediate and radical” regulations being pushed by Securities and Exchange Commission Chairman Mary Schapiro and Federal Reserve Chairman Ben S. Bernanke could lead to the “elimination or at the very least a major shrinkage” of the $2.6 trillion money market industry. The SEC is set to propose structural changes to money market funds that could modify the $1 share price to a floating net asset value, or recommend a capital buffer combined with restrictions on withdrawals. Ms. Schapiro will be on Capitol Hill again Thursday to explain to a Senate panel why further steps are necessary to protect investors from a destabilizing event like the 2008 collapse of the Reserve Primary Fund. The Treasury Department had to intervene at the time to prevent a run on money funds. “These proposals have the effect of saying, 'Let's get rid of the industry or make it so expensive that no one will want to use it,” Mr. Angel said. Regulators should evaluate how the 2010 money market fund reforms “have reacted to market stress and if they have achieved their purpose” before proposing new changes, he recommended. At the Senate Banking Committee hearing on Thursday, Bradley S. Fox, treasurer of Safeway Inc., will speak in support of the Chamber of Commerce's opposition to money market reforms, said David Hirschmann, chief executive of the business group's Center for Capital Markets Competitiveness. “This is at the top of our list of issues because of the broad impact it will have,” Mr. Hirschmann said.