Bloomberg News

FSOC Supports Overhaul to Trim Risk of Money-Market Runs

July 18, 2012

The Financial Stability Oversight Council said it supports “the implementation of structural reforms to mitigate the run risk” in money-market funds.

“These reforms are intended to address the structural features” in funds that caused a freezing of short-term credit markets after the failure of the Reserve Primary Fund in 2008, the FSOC said in a report to Congress released today.

The FSOC said it was focused on “structural vulnerabilities” in the tri-party repo market and cited “potential threats from the crisis in Europe.”

The council, which includes Federal Reserve Chairman Ben S. Bernanke, was created by the Dodd-Frank financial overhaul act to help prevent another financial crisis. The regulators discuss potential threats to U.S. financial stability, including the European debt crisis.

The council also voted unanimously today to designate eight financial market utilities as systemically important and thus subject to increased regulatory scrutiny.

The Treasury Department listed the entities as: ICE Clear Credit LLC; Chicago Mercantile Exchange Inc.; and the Clearing House Payments Co. LLC.

Also listed by the Treasury were the Options Clearing Corp.; CLS Bank International; the Depository Trust Co.; Fixed Income Clearing Corp.; and National Securities Clearing Corp.

Previously Disclosed

The designations were previously disclosed by the companies.

The annual report released today also mentions that investigations into manipulation of the London interbank offered rate, known as Libor, “underscore the importance of effective control processes to help ensure the integrity of funding markets.”

At the council’s open meeting today, U.S. Treasury Secretary Timothy F. Geithner, the panel’s chairman, said risk- management failures at firms including JPMorgan Chase & Co. prove the importance of the Dodd-Frank financial rules overhaul.

“We still have unfinished business,” Geithner said. “Consider the failures of MF Global and Peregrine Financial, the risk-management failures at JPMorgan, the abuses surrounding Libor, or the financial threats from Europe.”

The council also includes the chairmen of the Securities and Exchange Commission and the Federal Deposit Insurance Corp.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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