Rules for Money Market Funds Arrive, Finally—NYT
What makes these funds different from the giant banks, investment firms and mortgage securities markets that were fatalities of the global financial crisis is this: It has taken until now for the United States government to do much of anything to try to stop it from happening again.
The fact that it has taken so long to put in rules to try to make the sector less prone to 2008-style runs — the Securities and Exchange Commission adopted new rules Wednesday on a 3-to-2 vote — is a depressing indication of the challenges that stand in the way of creating a more stable financial system.
Whatever you think of the Dodd-Frank Act and other related efforts by regulators to tighten the screws on giant banks, there’s no disputing that they are having an effect. Regulators are monitoring the inner workings of big banks more closely, and the banks in turn are holding more capital and engaging in less risky trading activity. Bankers would argue those efforts go too far and restrict the availability of capital in the economy, while some advocates would argue that they don’t go far enough. But no one disputes that the banking industry looks different than it did five years ago (see our analysis of Citigroup last week for a specific example).
But to me the key lesson is this: Even when a sector of the shadow banking system has clearly exhibited vulnerability and has been studied every which way for decades, it will take years of bureaucratic infighting to put in place rules to reform it.