PARTICIPANTS
Troy Paredes, Michael Boskin, John Cogan, John Gunn, Stephen Haber, Bob Hall, Monika Piazzesi, Martin Schneider, Ken Scott, Saurabh Shah, John Taylor, Susan Woodward, Ian Wright
ISSUES DISCUSSED
Troy Paredes, Securities and Exchange Commissioner, discussed the current environment at the Securities and Exchange Commission (SEC), the Dodd-Frank Act, the importance of economic analysis in regulation, and money-market mutual fund regulation.
Paredes began by explaining the unique time of scrutiny that the SEC has been under since his taking office in 2008, and that this has appeared to amplify the effects and debate about any actions taken by the SEC. He then discussed the SEC’s current situation pertaining to the Dodd-Frank Act, stating that how it will influence markets will only be revealed with time. Further, he argued that the effects Dodd-Frank will have cannot yet be known because the act hasn’t yet been implemented, explained that the commission is still working to put all the rules in place, and that full implementation of the act will have to take place in an iterative fashion as effects and consequences of it are learned and components are updated. What exact iterations are gone through and how the complexity of the act is dealt with remains to be seen over the coming years.
Paredes also explained the important role that economic analysis will need to have at the SEC in future years. While the resources (both in terms of data availability and the number of economists employed at the SEC) for the analysis are becoming more available, Paredes warned that data reporting and employing more economists takes time and is costly, thus making the production of more robust quantitative SEC analyses a slow process.
Paredes concluded by stating that he would like to have more retrospective reviews as part of SEC rules (which is slowly happening) in order to mitigate some of the regulatory difficulties the SEC currently experiences.
Paredes then discussed the SEC’s consideration of potential changes to the regulation of money market funds. He observed that in 2010 in the aftermath of the financial crisis the SEC adopted money market fund reforms that mandate greater liquidity, creditworthiness and transparency for money market funds. He stated that it is critical that there be a consistent articulation of the problem to be solved for and that any solution proposed be rooted in data and economic analysis. He emphasized that the full range of costs imposed by any regulatory change must be considered given the importance of money market funds as a source of funding in the economy and a means of cash management. He expressed doubt that a floating net asset value, one of the potential changes being considered, would stop runs on money market funds in a time of crisis.
