Late on the evening of August 23 Chairman Mary L. Schapiro decided to punt on the biggest issue of the year for the investment fund industry.

She canceled the expected August 29 vote of the Securities and Exchange Commission on proposals she'd been floating, including floating the net asset value of money market mutual funds and setting capital buffers and redemption restrictions for them.

Instead of carrying out the vote, she cashed out. And cashing in was commissioner Luis Aguilar, the swing vote, because he had a broad, big picture view of the reform that needed to take place. He was not against reform. Instead, he wanted a clear, sober look by the commission on whether the reforms it had instituted in 2010 had worked or not.

More importantly, he wants the commission to look at the entire cash management industry and how it should be reformed. Roughly $9 trillion is on deposit at the nation's banks, which would include money market accounts. About $2.6 trillion is in money market mutual funds. And there are other cash pooling vehicles. "It is clear to me that there is much to be investigated related to the cash management industry, as a whole, before a fruitful discussion can be initiated as to whether additional structural changes should be made to only one segment of the cash management industry - SEC-registered money market funds,'' Aguilar said.

Now, clearly it's hard enough for the SEC to oversee funds that must register with it, as this whole episode has shown. It's a herculean task to ask it to look as well at the "pooled vehicles exempted from registration and largely excluded from regulatory oversight'' as Aguilar puts it.

But there is little question that a flat, fair playing field is needed, for all cash management vehicles, whether they pay interest or not, whether they have insurance or not, whether they compete on yield or not.

Just as banks are facing increasing capital requirements before the resources of the Federal Deposit Insurance Corporation runs out, so must the money fund industry find a way to finance its own solvency.

The Treasury Department and the Federal Reserve, now left to pursue any further reform of the money fund industry, might be happy to put the same kind of capital requirements on money funds as the Basel III accords are promulgating for banks. There are enough actuaries out there to figure out how much capital has to be set aside per billion on deposit for any cash management industry to insure itself.

Fidelity Investments was in favor of capital buffers. In effect, so has been BlackRock. And, let's not forget, the Investment Company Institute itself proposed a private liquidity facility in January 2011. Under that blueprint, all prime money market funds-those that invest in high-quality, short-term money market instruments, including commercial paper-would be legally required to participate.

The backstop was to be capitalized by initial contributions from fund sponsors and ongoing fees from collected from member funds. In the third year, the liquidity facility would begin to issue time deposits to third parties to further build its balance sheet. Like other banks -and that was the word ICI used-the facility would also have access to the Federal Reserve discount window.

Time to resurrect that proposal? Or, at least for the industry itself to create its own backstop.

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