Home Viewpoints

TOPICS
401(k)
Bond Fund
Bonds
Commodity Investments
Corporate Bonds
Cybersecurity
Equity Fund
Equity Investing
Europe
Events
Exchange-Traded Funds
Federal Reserve
Financial Markets
Financial Stability
Fixed Income
Fund Governance
Fund Regulation
GMM
Global
Government Affairs
ICI Global
IDC
IRA
Index Fund
Interest Rate
International
Investment Education
Investor Research
Money Market Funds
Mutual Fund
Operations and Technology
Policy Research
Proxy Voting
Retirement Policy
Retirement Research
Savings
Shareholder
Target Date Funds
Taxes
Trading
Treasury
ARCHIVE
Former ICI President Matt Fink Decries FSOC’s “Revisionist History”
By Mike McNamee
May 30, 2014
Arguments that large stock and bond mutual funds are prone to “runs” that can destabilize markets go back many decades, and are as misguided now as they were then, argues Matt Fink, ICI president from 1991 to 2004, and author of The Rise of Mutual Funds: An Insider's View.
In an opinion piece written for Ignites (subscription required), Fink cites claims by bank regulators and others that large mutual funds pose risks to the overall financial system, and thus require designation by the Financial Stability Oversight Council (FSOC) as systemically important financial institutions, or SIFIs. As ICI has pointed out previously, such designation—and the resulting “prudential supervision” by the Federal Reserve—would raise costs for investors, harm a fund’s ability to serve its investors, and distort the marketplace.
Fink points out that claims of mutual fund “runs” were first brought up in the aftermath of the stock market crash of 1929, leading to calls to limit the size of mutual funds. But the unique structure of the funds and their managers, as well as the tough controls incorporated in the Investment Company Act of 1940, have meant that “no stock or bond fund has ever faced a run, failed, or otherwise posed a risk to the financial system,” Fink writes.
He adds that two examples of risk most cited by modern critics—Reserve Primary Fund’s “breaking the dollar” in 2008 and the failure of Long-Term Capital Management (LTCM) in 1998—are “red herrings.” Though some regulators currently allege that risks arise from stock and bond mutual funds, neither Reserve Primary (a money market fund) nor LTCM (a hedge fund) supports their case. “If anything,” he concludes, “these two cases highlight the remarkably successful history of stock and bond mutual funds, which have successfully weathered many crises without placing the financial system in peril.”
For more information on ICI’s views and research on financial stability, please visit our Financial Stability Resource Center or read the previous entries in our recent Viewpoints series on the subject:
- SIFI Designation for Funds: Unnecessary and Harmful
- Size by Itself Doesn’t Matter—Leverage Does
- The Market Crash That Never Came
- Who Are the FSB 14?
- How SIFI Designation Could Lead to a New Taxpayer Bailout
- Overseas Overreach
- For Concerns About Risk, a Better Way Forward
Mike McNamee is Chief Public Communications Officer at ICI.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundTreasury
Errors of the Times: Getting the FSOC Debate All Wrong
By Mike McNamee
May 23, 2014
New York Times columnist Floyd Norris makes a number of fundamental errors in his Friday column about the House Financial Services Committee hearing and the broader debate about the Financial Stability Oversight Council (FSOC) and its review of asset management.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
SEC Chair White Stresses Need for FSOC to Consult Sources for Necessary Expertise
By Rachel McTague
May 22, 2014
Securities and Exchange Commission (SEC) Chair Mary Jo White today called for the U.S. Financial Stability Oversight Council (FSOC) to use outside expertise to the degree necessary in its process of designating systemically important financial institutions (SIFIs). She asserted that it is “enormously important for FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.”
TOPICS: EventsFederal ReserveFinancial MarketsFinancial StabilityFund GovernanceFund RegulationGMMGovernment AffairsMoney Market FundsMutual FundOperations and TechnologyShareholderTradingTreasury
Headlining ICI’s GMM, Blair Talks of Tough Challenges, Vast Opportunities
By Rob Elson
May 21, 2014
Challenges abound in our increasingly global world, said Tony Blair, former prime minister of the United Kingdom. Yet our future could be brighter than ever, he insisted.
Blair’s stirring words came during a keynote speech at ICI’s 56th General Membership Meeting (GMM). After his opening remarks, Blair sat down with ICI Chairman Bill McNabb, Chairman and CEO of The Vanguard Group, to discuss a range of issues. The session headlined the three-day meeting, which began yesterday in Washington, DC.
TOPICS: 401(k)EventsFinancial MarketsFund RegulationGMMInternationalMutual Fund
GMM Policy Forum: BlackRock’s Larry Fink Speaks with ICI’s Paul Stevens
By Todd Bernhardt
May 21, 2014
The fund industry needs to stop focusing on the moment and start focusing on outcomes when advising investors on their resources, said Laurence D. Fink, chairman and CEO of BlackRock, at ICI’s Annual Policy Forum, part of the Institute’s 56th General Membership Meeting (GMM).
TOPICS: 401(k)BondsEventsFinancial MarketsFund RegulationGMMInternationalInvestment EducationMutual FundRetirement PolicySavingsShareholderTreasury
“Market Tantrums” and Mutual Funds: A Second Look
By Sean Collins and Chris Plantier
May 19, 2014
Over the past year, policymakers who are focused on financial stability have pursued a theory that mutual fund investors can destabilize financial markets by redeeming from funds when markets decline. According to this theory, redemptions by fund investors lead fund managers to sell securities; those sales drive asset prices down further and, in turn, spur more investor flight, redemptions, and price declines.
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityFixed IncomeFund RegulationInterest RateInvestor ResearchMutual FundTradingTreasury
For Concerns About Risk, a Better Way Forward
By Mike McNamee
May 16, 2014
Since the financial crisis, regulators in the United States and abroad have been looking for ways to prevent a repeat. But recently it seems they’ve gone off course.
TOPICS: Financial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
Overseas Overreach
By Mike McNamee
May 15, 2014
The Financial Stability Board (FSB)—composed of financial regulators and central bankers from around the globe—is proposing a flawed methodology that inappropriately puts regulated U.S. funds under scrutiny for possible designation as global systemically important financial institutions—or G-SIFIs.
TOPICS: Financial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
How SIFI Designation Could Lead to a New Taxpayer Bailout
By Mike McNamee
May 14, 2014
We have spent the past several days discussing why efforts by international and domestic regulators to examine mutual funds as sources of systemic risk are unnecessary and inappropriate.
TOPICS: Financial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundTreasury
Who Are the FSB 14?
By Mike McNamee
May 13, 2014
In their search for ways that investment funds can pose risks to the financial system, regulators and central bankers from around the globe have proposed an arbitrary threshold: any investment fund with assets of more than $100 billion should automatically be subjected to further examination and consideration as a possible “global systemically important financial institution,” or G-SIFI.
TOPICS: Financial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
The Market Crash That Never Came
By Mike McNamee
May 12, 2014
U.S. and international banking regulators, in their search for ways that mutual funds and their managers could threaten financial stability, have come up with a simple story: fund investors and asset managers “crowd or ‘herd’ into popular asset classes or securities” and thus “magnify market volatility.”
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
Size by Itself Doesn’t Matter—Leverage Does
By Mike McNamee
May 9, 2014
Second in a series of Viewpoints postings on funds and financial stability.
The threshold set by the Financial Stability Board (FSB) for examining whether a regulated fund could pose risk to the financial system should be redrawn—or better yet, withdrawn.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
SIFI Designation for Funds: Unnecessary and Harmful
By Mike McNamee
May 8, 2014
U.S. and international regulators are examining whether asset managers or the investment funds that they offer could be sources of risk to the overall financial system and should thus be designated as systemically important financial institutions (SIFIs).
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
ICYMI: "The Feds Target Money Managers"
By Mike McNamee
May 7, 2014
Yesterday’s editorial in the Wall Street Journal, “The Feds Target Money Managers,” neatly summed up the case against treating asset managers as systemically important financial institutions (SIFIs) and subjecting them to bank-style regulation.
TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundTreasury
Copyright © 2019 by the Investment Company Institute