This Is The Reason For The SEC Proposal

Financial Planning is reporting that management companies obtained permission from the SEC to provide support to161 money market funds during the credit crisis/financial market seizure of 2008.  The list of funds and their sponsors was provided to Congress as a follow up to testimony the Mary Shapiro gave to the Senate Banking Committee in June.  Five of the top 10 money fund managers were included on the list.  In all of these cases, the management firms were willing to put up their own capital to allow the money funds to weather the storm.

Of course, the management firms are howling.  Brian Reid, chief economist at the Investment Company Institute responded, "What's troubling about this list is that the reason for the support is completely obscured, and so it gives a false and misleading impression...Now they are trying to use sponsor support as some sort of inference that there's a problem."

Actually, it appears that the SEC is not suggesting that there is always a problem, just there are times when problems occur.  What the proposal does is codify the for all money funds the steps that were taken to allow the 161 funds cited to survive the crisis.  The proposal call for management companies to maintain a capital cushion for their money funds at all times, not just in crisis.  Alternatively, they can allow the funds' NAVs to float on a daily basis.

The article does not say how much capital was committed to saving the money finds, nor the cumulative assets of the funds.  this would give an indication of the reasonableness of the magnitude of the capital requirement.  Otherwise, the number of funds affected four years ago seems to justify the new regulation.