As reported in a recent NACo news bulletin, new money market fund disclosure requirements could negatively affect local governments.
With more than $2.6 trillion of state and local government, corporate and individual assets invested in MMFs, the Securities and Exchange Commission (SEC) has sought reform of the MMF sector since the 2008 national financial crisis, when the Reserve Primary Fund (a large and popular MMF) “broke the buck” and triggered a run on MMFs and a tightening of the short-term credit markets.
Although the SEC took steps in 2010 to make MMFs more resilient, it is still concerned about the funds’ susceptibility to investor runs and the potential systemic impacts that such runs could have on the larger financial system.
To address these concerns the SEC unveiled a new rule proposal in June 2013 that would increase transparency and disclosure requirements of MMFs, or require some funds to float their net asset values (NAV). While some of the elements of the proposal could do a lot to further strengthen MMFs and reduce systemic risk, floating the NAV could have significant cost implications for state and local governments.
The Governments Finance Officer’s Association is working with a coalition to express concerns to the SEC. However, counties are encouraged to submit their own concerns as well.