Vanguard's Sauter to IOSCO
Vanguard's CIO Gus Sauter is the latest to write a comment letter to IOSCO and the SEC. He says, "As IOSCO begins to consider which money market fund reform measures it will recommend to the Financial Stability Board, we believe the recommendations must be informed by what occurred in 2008. First, only one money market fund "broke the buck." Shortly thereafter, in an environment where multiple financial institutions were failing, many institutional money market funds experienced large-scale redemptions and other money market funds faced reduced liquidity for the securities of otherwise credit-worthy issuers. Due to this market-wide illiquidity, some money market funds were not able to raise cash to satisfy investor redemptions. For all but one fund, the 2008 financial crisis was a liquidity -- not credit -- crisis, stemming from investors' lack of confidence in certain significant financial institutions and, particularly in the U.S., uncertainty about the Federal Reserve's willingness to act as a lender of last resort. The 2008 financial crisis revealed a weakness in the then-prevailing U.S. money market fund regulations, which did not explicitly require liquidity thresholds for money market funds. As detailed in Appendix A, recent changes in U.S. money market fund regulations have greatly improved the funds' resiliency by addressing their ability to satisfy large redemption requests. These initiatives have made money market funds self-provisioning for liquidity, reducing the likelihood that a future systemic market disruption would threaten the liquidity of these funds and require government support."
