One Federal Reserve governor is trying to turn up the heat on the SEC to enact money market fund reform.

Yesterday, Fed governor Dan Tarullo lent his voice to the push for tighter fund regulations, saying that he hopes the SEC will reverse course and back Mary Schapiro's reform plans. Bloomberg Businessweek reported that at a speech at the University of Pennsylvania, Turillo urged the SEC to get moving to tighten rules for money funds, which he called "a major part of the shadow banking system."

Turillo thinks that reforms are best enacted by the SEC, rather than through the Tim Geithner-chaired FSOC, which last month signaled that it could force the SEC into action.

That's not a great solution, in Tarullo's view.

"The protective tools available to the rest of us do not fit the problem precisely and thus will not regulate at the least cost to the funds while still mitigating financial risk," he said. "My hope, of course, is that recent indications that other SEC commissioners are now willing to move forward with reforms will lead to the SEC adopting first-best measures in the near-term."

Tarullo also floated the idea of capping the maximum size of financial institutions to eliminate the "perceptions of at least some residual too-big-to-fail quality." 

Edited by: Chris Cumming


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