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Mutual funds or mutual fund companies as Systemically Important Financial Institutions (SIFI)

We strongly recommend all read Bill McNabb's piece in today's Wall Street Journal. He is the CEO of Vanguard.

Regulators prepare to declare that large funds pose a ‘systemic’ financial risk. Investors will pay the price


This is an important issue: the proposed regulations are hugely destructive to the US capital markets and investors alike. Unlike the assets of banks, mutual funds have no maturity, hence no roll-over risk therefore no risk of default. They merely have price which reflects supply and demand.

At base we can extend the terribly flawed notions implicit in this regulation: equity investors now will be the lender of last resort to (or you may read that as "owners without voting rights" of) the TBTF banks. 

Of course, consider the preferred, but politically unavailable solution (at least for now) these regulators really want: the ability to prohibit sales of mutual funds whenever the Fed so macro-prudentially deems it appropriate. We jest? The institutional money market funds already have gating mechanisms, and they are now trying to push them in a slightly different form to the equity markets.

And we haven't even mentioned the costs which present yet another taking, a confiscation & transfer, of property rights & wealth to the regulatory state.

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