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Reform Money Funds Now

N.Y. Fed President William C. Dudley calls for capital buffers, withdrawal limits for funds.

By William C. Dudley, Bloomberg | Updated on August 15, 2012

The crisis in the euro area is a reminder that threats to financial stability are never far away. While progress has been made on financial reform over the past two years, more must be done to ensure that the financial system is robust enough to absorb shocks and still provide the credit needed for economic growth and job creation.

A glaring vulnerability exists with money-market mutual funds. I believe changes along the lines proposed by Mary Schapiro, the chairman of the U.S. Securities and Exchange Commission, are essential. In particular, money funds should have capital buffers and modest limits on investor withdrawals. Such reforms are necessary to protect the economy from financial instability in the future.

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