WASHINGTON - Treasury Secretary Tim Geithner asked the Financial Stability Oversight Council to take up structural reforms to the $2.6 trillion money market mutual fund industry, citing the Securities and Exchange Commission's failure to act.

In a letter to regulators on the council, Geithner said money market fund reforms are "essential to financial stability," and said the Dodd-Frank Act "gives the council both the responsibility and authority to take action to address risks to financial stability if an agency fails to do so."

He said the council should issue a set of proposals, including two alternative reforms proposed by SEC Chairman Mary Schapiro and a third alternative that would impose capital and enhanced liquidity standards.

Schapiro was forced last month to abandon a planned SEC vote on her reform proposals, and observers speculated that other federal regulators may act in her stead.

Possibilities include floating the net asset values of money market funds, or requiring them to hold a capital buffer of adequate size - "likely less than 1%" - to absorb fluctuations in the value of their holdings.

Geithner's letter called upon FSOC to formally recommend the SEC take action, a move that would either force the agency to act or at least explain why it isn't moving forward. If the SEC does not take action, the FSOC may take more drastic steps, Geithner warned.

"The SEC, by virtue of its institutional expertise and statutory authority, is best positioned to implement reforms to address the risks that MMFs present to the economy," Geithner wrote. "However, while we pursue this path, the council and its members should, in parallel, take active steps in the event the SEC is unwilling to act in a timely and effective manner."

Geithner urged the council to carefully evaluate the money market fund industry to determine which firms might pose a threat to financial stability. Designating certain MMFs - or their sponsors or investment advisers - would subject those firms to enhanced supervision by the Federal Reserve Board, which would be able to impose enhanced prudential standards.

Geithner noted that, alternatively, the council could designate systemically important payment, clearing or settlement activities under Title VIII, which would enable heightened risk management standards for the entire industry.

Regulators remain concerned that money market mutual funds are vulnerable to runs, as seen during the financial crisis four years ago.

But some observers have said it would be risky for FSOC to designate an entire industry, rather than just particular firms, and any designation would also be vigorously opposed by the industry itself.

Geithner also said regulators have the authority to take actions on their own, including imposing capital surcharges on regulated entities that sponsor money market funds, or restricting banks' ability to sponsor, borrow from, invest in or provide credit to funds that lack structural protections.

"I urge the members of the council to accelerate their evaluation of these alternatives," he said. "Four years after the instability of MMFs contributed to the worst financial crisis since the great Depression, with the failure of the SEC to act, the council should now move forward with the tools provided by Congress."