Members of the Financial Stability Oversight Council discussed the reforms aimed at the so-called short-term funding markets, which include money market mutual funds holding trillions of dollars.
The oversight council is an interagency group headed by Treasury Secretary Janet Yellen, who said the 2020 crisis prompted “extreme policy interventions” by the Federal Reserve and Treasury to restore order in the market.
Federal Reserve Chair Jerome Powell, also a member of the council, said the 2020 crisis was triggered by a “dash for cash” that prompted the Fed to step in with back-up financing to calm the turmoil.
“Rapid redemptions at money market funds resulted from and in turn exacerbated the liquidity pressures,” he told the panel.
Powell said after the Fed created a Money Market Mutual Fund Liquidity Facility with $10 billion in backing from the Treasury Department, the “turmoil subsided, conditions in short-term funding markets improved and access to credit increased.”
The council received a closed-door briefing from the staff of the Securities and Exchange Commission on the comments it has collected on what reforms need to be pursued to make short-term funding markets more resilient at times of financial crisis.
SEC Chairman Gary Gensler told the group during its open meeting that he has directed SEC staff to prepare recommendations that can be voted on by the five-member SEC. Yellen said she fully supported the efforts by the SEC to reform the current system.
Council members also expressed concern that the global financial system is not moving quickly enough to prepare for the transition away from LIBOR, the London interbank offered rate, which has been the interest rate benchmark for trillions of dollars in financial contracts.
Regulators have supported moving from the LIBOR rate to the Secured Overnight Financing Rate, or SOFR, by the end of this year.
But Yellen and other officials expressed worries that not enough was being done now to prepare for the switch from LIBOR to SOFR.
“More must be done to facilitate an orderly transition,” Yellen told the panel. “While important progress is being made in some segments of the market, other segments, including business loans, are well behind where they should be at this stage of the transition.”