US authorities face a tough battle to further regulate the $2.4 trillion money market fund industry after an intense lobbying campaign and internal dissension defeated a proposal at the Securities and Exchange Commission.
The action now likely moves to the Financial Stability Oversight Council, a group including leading regulators and the Treasury Secretary, established by the 2010 Dodd-Frank Act to eliminate threats to the financial system that might otherwise fall through the gaps between agencies.
But the council will have to overcome the same industry forces that turned back the SEC plan and it has less clear authority over fund matters, according to legal analysts. And, because the group is chaired by Treasury Secretary Timothy Geithner, the upcoming presidential election could dramatically change FSOC's focus before it has time to act.
Geithner "lacks the time and, more importantly, the personal conviction and credibility to drive this through in the remaining days of his tenure," Boston University law professor Cornelius Hurley said. "If it's Romney making the appointment, the issue is dead," added Hurley, who served as assistant general counsel at the Federal Reserve under Paul Volcker.
A Treasury spokeswoman did not immediately return a message seeking comment on Hurley's criticism.
Republican Presidential candidate Mitt Romney's campaign has not responded to questions about money funds this week.
Money funds were long a sleepy corner of the fund industry, collecting money from investors and serving as leading buyers of short-term debt from corporations, municipalities and the US government.