February 02, 2010
Noticed: Cross-Border Bailout Fund, Agency Budgets, MMFs Become Regulated Industry
Posted by David Zaring
  • The possibility of a cross-border bailout fund is interesting, but hard.  Who is going to keep the money, and who is going to give it to what, no doubt, would be a shadowy international cartel of banking regulators?  We also sort of have one of these for sovereigns - it's called the IMF.  Might be easiest to set up anything for TBTF cross-border institutions under its auspices.
  • The SEC's proposal to regulate Money Market Funds would take the free market right out of them.  Why is the SEC the agency with the power to regulate MMFs?  It's not totally obvious, because the agency does not regulate the short term securities that the funds buy - commercial paper - or longer term Treasuries (well sort of). At any rate, the regulation the agency is imposing is intense: requirements that MMFs purchase only AA or better assets, strict limits on holdings of "illiquid" investments, and defining such investments as those that cannot be sold within only seven days (a thought that would make Harvard and Yale, with their forests and 99 year leases, choke).  And it is all done through rulemaking, which may not thrill you, but says to me that the agency is transforming a very big industry that it not oversee before the crisis, and did not bail out during the crisis (Treasury did that).  Some people would call that a power grab.  Who says the SEC is toothless?  And there's this language:
    • For all money market funds, at least 30 percent of assets must be in cash, U.S. Treasury securities, certain other government securities with remaining maturities of 60 days or less, or securities that convert into cash within one week.
  • The President's budget is good to the SEC, but the big winner is the CFTC, which admittedly had a long way to go.  I think we can all agree that the idea that the agencies might be merged is, on the evidence of this proposal, not going anywhere.  The details from the BLT:
    • Commodity Futures Trading Commission: increase of 54.4% to $261 million, with the bulk of the increase going to new regulation of derivatives and stepped-up enforcement of existing regulations. The budget plan notes that “trading volume has increased five-fold over the past ten years.” The plan would pay for 20 new full-time staffers for existing responsibilities and 119 to carry out regulatory changes.
    • Securities and Exchange Commission: increase 11.1% to $1.2 billion. The additional money would be directed throughout the agency’s divisions, including its enforcement division, which handles criminal investigations, and its corporate finance division, which oversees disclosure requirements. The plan anticipates the number of full-time, permanent employees to grow by 13% to 635.

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