Released at an event discussing the SEC's proposal on money market funds, this report finds that the operational complexity, systems alterations, and business process changes needed to support a floating NAV threaten the vitality of money market funds for most investors, including businesses and municipalities. The report, titled "Operational Implications of a Floating NAV across Money Market Fund Industry Key Stakeholders" examines the compliance costs across key stakeholders if money market funds (MMFs) transition to a floating net asset value (NAV).
Since their inception more than 40 years ago, money market funds (MMFs) have become a vital short-term cash management tool for public and private sector entities. Several distinctive characteristics make MMFs the favored short-term investment and finance vehicle for these organizations.
- Principal Preservation—The safety of MMFs is one of their most critical characteristics. Principal preservation is a primary objective within most institutional investment policies, and MMFs are able to meet that requirement.
- Same-Day Liquidity—The ability to redeem shares and receive cash on a same-day basis makes MMFs a practical way to fund daily cash disbursements such as payroll and supplier payments.
- Risk Diversification—Given regulations requiring diverse underlying assets within MMFs, they provide an effective and efficient way for organizations to hold a diverse portfolio of high-quality, short-term securities.
- Administration—The stable $1 net asset value (NAV) share price dramatically eases the accounting and administrative burden for investors.
As part of the 7th Annual Capital Markets Summit, CCMC released data detailing how non-financials use the capital markets. We interviewed and surveyed more than 200 corporate treasurers and CFOs.
- Choice & Diversity Are Paramount: 95% of Main Street businesses surveyed use 5 or more financial services.
- Choice + Diversity = Flexibility: They use multiple institutions of different sizes to meet their needs. Among Main Street businesses that issue debt, 84% use global institutions, 34% use national institutions and 21% use a regional/ local bank.
- Ineffective Regulations = Reduced Choices And Increased Costs: More Main Street businesses say Dodd-Frank is reducing choice, rather than creating more choice.
- As A Result, Main Street Businesses Tend To Favor Trends & Policies That Preserve Choice
This report card evaluates the progress being made by regulators and policymakers to achieve modern, well-regulated, fair, transparent, and vibrant capital markets. It looks both at the implementation of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 as well as key regulatory reform issues not addressed by the law. By all accounts, regulatory reform is still incomplete. So, for those unfinished reforms outlined in this report, CCMC assigns a grade, in addition to an incomplete, based on regulators’ progress to date. This report also provides suggestions for how regulators and Congress can bring up the grade to ensure that the ultimate outcome of regulatory reform is a robust capital formation system that benefits consumers, investors, and job creators. Failure to get this right will deprive job creators of the investments, loans, and other forms of credit they need.
We released the “Fix, Add, Replace (FAR) Agenda” outlining the Center’s priorities for meaningful financial regulatory reform. The FAR agenda tackles specific provisions of Dodd-Frank that need to be fixed, such as margin rules for derivatives, either because they are not working as intended or because regulators have indicated they need additional guidance or legislation from Congress. It also identified financial regulatory reform areas that were left unaddressed in Dodd Frank, such as improving coordination among regulators. And, it identifies some areas that need to be replaced because they simply do not work – such as the Volker Rule.
The FAR Agenda aims to examine and answer some basic questions:
- Are there areas where Dodd-Frank simply isn’t working as intended or where regulators need further clarity from Congress? How do we fix these?
- What additional steps should we take in areas that were left unaddressed in Dodd-Frank? For example, should we consolidate regulators or at a minimum ensure more effective coordination among the dozens of financial regulators?
- Are there provisions of Dodd-Frank that simply don’t work and need to be replaced?
We believe that voting standards and advice issued by proxy advisory firms need to be grounded in fact and reflect reality. With the release of these principles, we hope to initiate a dialogue among companies, investors, and proxy advisory firms to create a system that brings transparency and accountability to proxy advisory firms and fosters strong corporate governance.
At the core of the principles are that proxy advisory firms and advice:
- Are free of conflicts of interest that could influence vote recommendations;
- Ensure that reports are factually correct and establish a fair and reasonable process for correcting errors;
- Produce vote recommendations and policy standards that are supported by data driven procedures and methodologies that tie recommendations to shareholder value;
- Allow for a robust dialogue between proxy advisory firms and stakeholders when developing policy standards and vote recommendations;
- Provide vote recommendations to reflect the individual condition, status and structure for each company and not employ one-size-fits all voting advice; and
- Provide for communication with public companies to prevent factual errors and better understand the facts surrounding the financial condition and governance of a company.
Released on Tuesday, March 12, 2013, this report concludes that, while regulators sometimes currently fail to use cost-benefit analyses appropriately, financial regulations grounded in rigorous, transparent analytical standards are not only more efficient and effective but also promote good governance and accountability. Click here to read the full report.
Financial Stability Oversight Council Process
As established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 the Financial Stability Oversight Council (FSOC) provides for the first time comprehensive monitoring to ensure the stability of our nation’s financial system. The council is charged with identifying threats to the financial stability of the United States, promoting market discipline, and responding to emerging risks to the stability of the U.S. financial system.
Money Market Mutual Funds (MMMF) and the FSOC: On August 22, SEC Chairman Mary Shapiro announced that she did have not the necessary votes to move forward with a proposal to reform money market funds and pointed to FSOC to propose and implement reforms. FSOC could take one of two paths to reform MMMFs. Click here to download an graphic explaining the two paths.
Amortized Cost Accounting is “Fair” for Money Market Funds
This paper examines more than 30 years of accounting standard setting and Securities and Exchange Commission regulation to support the use of the stable
value at which money market funds (MMFs) trade. Authored by Dennis Beresford, former chairman of the Financial Accounting Standards Board, this paper diffuses the argument that the long-standing use of a stable net asset value (NAV), an essential aspect of MMFs for investors, is simply “accounting fiction” and must be changed to a floating NAV.
Money Market Funds Since the 2010 Regulatory Reforms:
More Transparency, Increased Liquidity, and Lower Credit Risk
Released at an event on October 16, this paper analyzes how money market mutual funds (MMMFs) performed leading up to the 2008 financial crisis and after the implementation of additional regulations in 2010, including the EuroZone crisis which followed a year later.
Authors Dr. David W. Blackwell, Professor of Finance at the University of Kentucky, Dr. Kenneth R. Troske, Professor of Economics at the University of Kentucky, and Dr. Drew B. Winters, Chair in Finance at Texas Tech University, analyzed the changes made to regulations of MMMFs in 2010 and found that:
- MMMFs are now more liquid and better able to handle a significant change in redemptions;
- Dramatically increased transparency and disclosure frequency allows investors to now obtain timely, accurate data on the risk of any fund in which they invest;
- Overall, there is no evidence that the CP market experienced a “freeze” despite substantial redemptions in 2011;
- Funds experienced net-inflows during the Summer of 2011, as both institutional and retail investors sought the liquidity and resilience of MMMFs;
- Based on existing research, there is no evidence that any retail investor was affected by a run on MMMFs;
- The variance in monthly redemptions means a ‘one-size-fits-all’ rule limiting redemptions will be extremely difficult to adopt.
Click here to download the report.
Click here for the Executive Summary.
The Economic Consequences of the Volcker Rule
This report examines the numerous unintended, but nonetheless harmful, effects of the current Volcker Rule proposal, particularly on main street businesses.
The analysis, authored by Washington University Finance Professor Anjan Thakor, surveys existing academic research and empirical evidence, and reveals that restrictions imposed under the Volcker Rule proposal will extend beyond Congressional intent to impact both financial and non-financial businesses by:
- Reducing the ability of companies to raising capital by issuing debt: A negative effect on market making and liquidity provision for many securities.
- Increasing the cost of raising capital, resulting in reduced investments: Likely higher costs of capital for businesses and potentially lower capital investments by borrowers.
- Reducing the choices and options available for companies to raise capital: Possibly greater focus on riskier or more short-term investments by borrowers.
- Reducing the diversity and availability of capital providers to businesses: Some banks that never had proprietary trading desks but do help companies raise capital by issuing debt, may choose not to continue to provide those services.
Click here to download the report.
Money Market Mutual Fund "Reform": The Dangers of Acting Now
Money Market Funds (“MMF”) are an important vehicle that investors rely on and that business, as well as state and local governments, use for short-term cash management. In fact, MMF’s encompass 40% of the commercial paper market.
The Report finds that now is not the time to engage in further MMF regulations because additional regulations will:
- Increasing costs in a low yield environment that will drive many MMRs out of business harming investors;
- increase borrowing costs, while impeding capital formation and cash management for businesses ultimately harming economic recovery;
- increase borrowing costs and restricting cash management for state and local governments potentially leading to tax increases;
- concentrating and increasing the threat of systemic risk.
Click here to download the report.
Financial Regulatory Reform: 2012 Report Card
The Report Card evaluates the progress being made, by Congress and regulators to achieve modern, well-regulated, fair, transparent, and vibrate capital markets down into four areas critical to ensuring the vitality of our markets:
- Protecting the Diversity of Capital Formation
- Reforming Corporate Governance
- Ensuring U.S. Competitiveness Through Financial Regulatory Reform
- Preserving the Integrity of Accounting and Auditing
In addition to grading the four areas, the report also provides suggestions on how regulators and Congress can bring up the grade to support capital formation system that benefits consumers, investors, and job creators.
The Economic Impact of the Current IASB and FASB Exposure
The report was commissioned by several of the leading nonprofit and commercial organizations concerned with economic growth in the United States and in the health of the real estate sector in particular. The members of the coalition include the U.S. Chamber of Commerce, The Real Estate Roundtable, NAIOP, Commercial Real Estate Development Association, NAIOP Inland Empire Chapter, NAIOP Southern California Chapter, the National Association of Realtors and the Building Owners and Managers Association International. The coalition’s objective in sponsoring the study is to ensure that the analysis of costs and benefits of proposed new accounting standards for leases includes a thorough consideration of the economics of commercial and industrial real estate leasing and development, so thatchanges to financial reporting do not distort market behavior and cause damage to both the real estate market and the national economy.
Click Here to download the report.
Money Market Funds: Helping Businesses Manage Cash Flows
Money market funds play a critical role in meeting the short-term capital needs of American businesses. For many businesses cash inflows and outflows don’talways line up, and money funds act as a financial intermediary in helping them offset these discrepancies. When cash outflows are greater than inflows, they turn to short term financing, and money market funds are often where these short-term instruments are ultimately placed. When cash inflows are greater than outflows, they invest the cash in money market funds.
Click here to download the report.
On December 14, the Chamber’s Center for Capital Markets Competitiveness (CCMC) released U.S. Securities and Exchange Commission: A Roadmap for Transformational Reform, calling for increasing commission from five to seven members as part of 28 recommendations to turn around the Agency.
In order to archive transformational reform, the report recommends:
- Developing a bold and clear plan
- Putting someone in charge of implementing the plan
- Removing statutory and practical obstacles
- Tying increased funding and resources to the transformation proces
Click here to download the report.
U.S. Capital Markets Competitiveness: The Unfinished Agenda
Rather than creating a new streamlined system, the Dodd-Frank Act added multiple new agencies with overlapping jurisdictions upon a crumbling foundation. With increased uncertainty and additional layers of regulation the capital markets, which fuel job creation, could face a period of sluggish and inconsistent growth. U.S. Capital Markets Competiveness: the Unfinished Agenda raises five major areas of concern that must be addressed for a growing and prosperous economy including:
1. Layered, Overlapping, and Complex Regulatory System;
2. Fundamental Reform of the Regulators;
3. Preserving Globally Competitive U.S. Capital Markets
4. Self-Regulatory Organization (SRO) Reform; and
5. Regulation through Enforcement.
Click Here to download the report
Sources of Capital and Economic Growth: Interconnected and Diverse Markets Driving U.S. Competitiveness
Sources of Capital and Economic Growth provides a broad overview of the complex financial system, describes the variety of financing sources available, and the considerations that lead a consumer or a business to choose a specific financing source. The analysis discusses how this capital formation system and diversity in financing sources provides benefits to the economy.
Over-the-Counter Derivative Study
An Analysis of the Coalition for Derivatives End-Users’ Survey on Over-the-Counter Derivatives
Coalition for Derivatives End Users – OTC Derivatives Survey
This presentation has been prepared to help constituents understand the current status of projects of the FASB and IASB including the topic of Lease Accounting.
Financial Crisis Responsibility Fee: Issues for Policymakers
The U.S. Chamber will released a study conducted by Hal S. Scott, Nomura professor of international financial systems, Harvard Law School that highlights the negative and unintended consequences the proposed "bank tax" would have on access to credit, job creation, and the overall economy. The study concludes that imposing the tax now would reduce access to credit for job creators and consumers at a time when the economy is still struggling to recover. The study highlights the following six issues for policymakers to consider when determining whether to support the tax: cutting off credit, wrong tax at the wrong time, uncertainty about size of shortfall and arbitrary timeline, potential for double taxation, potential for excessive taxation, and wrong way to reduce leverage and risk.
Examining The Main Street Benefits of our Modern Financial Markets
An in-depth look at how the evolution of our modern financial markets have reduced the cost trading for all investors, expanded investment opportunities for American families, and improved access to capital for U.S. businesses.
The Impact of the Consumer Financial Protection Agency on Small Business
The Proposed Consumer Financial Protection Agency would harm small businesses and their ability to access credit.
Examining the Efficiency and Effectiveness of the U.S. Securities and Exchange Commission
23 changes to certain core operations of the U.S. Securities and Exchange Commission (SEC) that will help improve the agency's regulatory oversight process.
Analysis of the Wealth Effects of Shareholders Proposals
In recent years, researchers have documented increased involvement by institutional investors (e.g., public pension funds) in company affairs.
Restoring Confidence in the U.S. Capital Markets – A Call for Financial Services Regulatory Modernization
Together with a bipartisan group of prominent business, former government, and academic leaders, this declaration calls for modernizing the regulations governing our capital markets in a way that puts the economy, jobs, and investors first.
2007 Sarbanes-Oxley Section 404 Cost Survey Report
November 8, 2007
The U.S. Chamber collaborated with other associations to compile data on the projected cost of Sarbanes-Oxley (SOX) Section 404 for small businesses ($75 million or less in market capitalization). SOX has had many positive impacts, but concerns remain regarding implementation and overly burdensome costs.
- Part 2 – Analysis of the Impact of Increasing Carried Interest Tax Rates on the U.S. Economy (November 2007)
- Part 1 – Analysis of the Impact of Increasing Carried Interest Tax Rates on the U.S. Economy (October 2007)
- Commission on the Regulation of U.S. Capital Markets in the 21st Century (March 2007)
- Report of the Current Enforcement Program of the Securities and Exchange Commission (March 2006)
- Capital Markets, Corporate Governance, and the Future of the U.S. Economy (February 2006)
- Auditing: A Profession at Risk (January 2006)