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Post Event Summary
Since a run on the Reserve Primary Fund during the financial crisis in 2008, the Financial Stability Oversight Council has suggested that some money market funds (MMF) threaten the stability of the U.S. financial system and place them—along with other large financial firms—under Federal Reserve supervision and regulation. On Thursday at AEI, Melanie Fein of Fein Law Office presented a paper defending MMFs from the prospect of increased regulation.
In her keynote address, Fein articulated why the transparency, lack of leverage, present regulation and strict liquidity requirements make MMFs substantially safe products in the financial system. Jeffrey Gordon of Columbia University disputed some of the paper's claims, however, emphasizing the two-sided run problem of MMFs that lack first-loss protection.
Ed Greene of Cleary Gottlieb Steen & Hamilton then placed MMFs in the broader context of shadow banking, still noting that unnecessary regulation would significantly harm the market for such funds. Investment Company Suite’s Paul Stevens concluded the discussion by asserting that regulators are perhaps overestimating the risks toward MMFs, which are among the most transparent products in the financial system.
Following the bankruptcy of Lehman Brothers in September 2008, one primary money market fund (MMF) "broke the buck" and set off a run on other similar funds. The U.S. Treasury temporarily insured MMFs to stem redemptions. In January 2010, the SEC changed the regulations governing MMFs to provide for more liquidity and disclosure of the potential risks associated with MMF investments.
Still, recent speeches by Federal Reserve officials have suggested more needs to be done and carried the veiled threat that, if the SEC does not take the necessary actions, the Financial Stability Oversight Council may find that some funds threaten the stability of the U.S. financial system and place them, along with other large financial firms, under Fed supervision and regulation. This discussion will consider whether MMFs require some capital backing and are suitable candidates for SIFI treatment.
Full video will be posted within 24 hours.
Melanie L. Fein, Fein Law Office
Jeffrey Gordon, Columbia University
Edward F. Greene, Cleary Gottlieb Steen & Hamilton
Paul Stevens, Investment Company Institute
Peter J. Wallison, AEI
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Melanie L. Fein is a practicing attorney in banking and securities law. She has been a partner at two major law firms and served as senior counsel to the Board of Governors of the Federal Reserve System. She now maintains her own practice and is the author of the leading treatises “Federal Bank Holding Company Law” (Law Journal Press), “Securities Activities of Banks” (Aspen Publishers) and “Mutual Fund Activities of Banks” (Aspen Publishers). She has served on the adjunct faculty of Yale Law School, Boston University Law School and the Columbus School of Law. She has held leadership positions on committees of the American Bar Association and the Federal Bar Association. She is a member of the Supreme Court Bar, the Virginia State Bar and the District of Columbia Bar. Her web site is www.feinlawoffices.com.
Edward F. Greene is senior counsel at Cleary Gottlieb’s New York office. Greene served as general counsel of the Securities and Exchange Commission from 1981 to 1982 and as director of the Division of Corporation Finance from 1979 to 1981. From 2004 to 2008, Greene served as general counsel of Citigroup’s Institutional Clients Group. He oversaw all legal aspects related to the group’s activities with issuers and investors worldwide, including investment banking, corporate lending, derivatives, sales and trading and transaction services. He served as chairman of the Institutional Clients Group Business Practices Committee in connection with his responsibility for regulatory and transactional matters. Greene is the author of a number of leading books and law review articles, including “The Sarbanes-Oxley Act: Analysis and Practice.” Greene has been recognized as one of the best capital markets lawyers by Chambers Global and he currently teaches a seminar at Columbia Law School, has been a lecturer at Harvard Law School and an adjunct professor of law at the University of Pennsylvania and Georgetown University Law Center.
Jeffrey Gordon is the Richard Paul Richman Professor of Law at Columbia Law School and co-director of its Center for Law and Economic Studies. He is also a fellow of the European Corporate Governance Institute. He teaches and writes extensively on corporate governance, mergers and acquisitions as well as financial regulation. He recently published “Confronting Financial Crisis: The Case for a Systemic Emergency Insurance Fund” (2011,with Christopher Muller) and has posted working papers on financial crisis-related executive compensation, money market funds and a paper entitled “The Micro, Macro, and International Design of Financial Regulation” (co-authored with Colin Mayer). Gordon practiced at a New York law firm early in his career and worked in the general counsel’s office of the U.S. Department of the Treasury. While at Treasury, he worked on the Chrysler Corporation loan guarantee program and financial regulation.
Paul Stevens has served as president and CEO of the Investment Company Institute since June 2004. He is also a director of ICI Mutual Insurance Company. Before, he was ICI's general counsel. Outside ICI, Stevens' career has included varied roles in private law practice, as corporate counsel and in government service. He was a leader of the financial services practice of Dechert LLP and general counsel for mutual funds and international enterprise at Charles Schwab & Company Inc. Earlier in his career, Stevens served as special assistant for national security affairs to President Reagan, as executive secretary and legal adviser of the National Security Council and in other senior positions at the White House and the Pentagon. Upon leaving government service, he received the U.S. Department of Defense (DOD) Medal for Distinguished Public Service, DOD's highest civilian decoration. His current community and civic activities include service on the Finance Council of the Catholic Diocese of Arlington and the executive board of the National Capital Area Council of the Boy Scouts of America.
Peter J. Wallison holds the Arthur F. Burns Chair in Financial Market Studies and is co-director of AEI’s program on financial policy studies. At AEI, Wallison researches banking, insurance and securities regulation. Before joining AEI, he practiced banking, corporate and financial law at Gibson, Dunn & Crutcher, in both Washington, D.C., and New York. From June 1981 to January 1985, he was general counsel of the U.S. Department of the Treasury, where he played a significant role developing the Reagan administration’s proposals for deregulation in the financial services industry. He is a frequent contributor to the op-ed pages of The New York Times, The Wall Street Journal and Financial Times. He has also written a book on campaign finance reform entitled “Better Parties, Better Government: A Realistic Program for Campaign Finance Reform” (AEI Press, 2009).