Federal Reserve Governor Daniel Tarullo on Wednesday urged the Securities and Exchange Commission to move forward with efforts to reform the $2.5 trillion money market fund industry, arguing that new regulations are necessary to limit future systemic risk. "The combination of fixed net asset value, the lack of loss absorption capacity, and the demonstrated propensity for institutional investors to run together make clear that [SEC Chairman Mary] Schapiro is right to call for additional measures," said Tarullo in New York at a Council on Foreign Relations event. The SEC is expected soon to propose two alternatives for regulating the industry, including one that would impose capital restrictions on money market funds, combined with limitations or fees on redemptions by consumers or other money fund purchasers. However, money fund managers, corporate treasurers and some municipalities argue new capital restrictions could severely hurt the industry, with treasurers and municipalities arguing that they may no longer be interested in using the investment vehicle as a result.
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