Leading regulators pledged on Friday to implement reforms in a key corner of the US financial markets, which the Federal Reserve and Treasury were supposed to rush to back after being shaken by the coronavirus outbreak in spring 2020.
The members of the Financial Stability Oversight Board discussed reforms aimed at the so-called short-term finance markets, which include trillions of dollars in money market mutual funds.
The Supervisory Board is a cross-sectoral group chaired by Treasury Secretary Janet Yellen, who said the 2020 crisis triggered “extreme political intervention” by the Federal Reserve and Treasury to restore order to the market.
Federal Reserve Chairman Jerome Powell, who is also a board member, said the 2020 crisis was triggered by a “cash dash” that prompted the Fed to intervene with reserve funding to calm the turmoil.
“The quick payouts in money market funds were the result and in turn exacerbated liquidity pressures,” he told the group.
Powell said that after the Fed created a $ 10 billion money market mutual fund liquidity facility backed by the Treasury Department, “the turmoil has subsided, conditions in the short-term financing markets have improved and access to credit has expanded.”
The Council, behind closed doors, briefed SEC staff on the comments it had collected on the reforms needed to make short-term finance markets more resilient during the financial crisis.
Securities and Exchange Commission chairman Gary Gensler told the group during an open meeting that he had instructed SEC staff to prepare recommendations on which a five-member commission could vote. Yellen said she fully supports the Securities and Exchange Commission’s efforts to reform the current system.
Board members also expressed concern that the global financial system is not moving fast enough to prepare for the transition from LIBOR, the proposed London interbank rate, which was the benchmark interest rate for trillions of dollars in financial contracts.
Regulators supported a move from LIBOR to overnight secured financing, or SOFR, by the end of this year.
But Yellen and other officials expressed concern that not enough is being done to prepare for the transition from LIBOR to SOFR.
“More needs to be done to facilitate an orderly transition,” Yellen told the group. “While some market segments are seeing significant progress, other segments, including business loans, are lagging far behind where they should be at this stage of the transition.”