Investor Run
The run abated only after the U.S. Treasury guaranteed money-fund shareholders against losses on more than $3 trillion in securities for a year and the Fed began financing the purchase of fund holdings at face value to help them make redemptions. Congress has since prohibited the Treasury from acting in the same way.
The SEC passed rule changes in 2010 designed to strengthen the funds. Schapiro has said more action is needed. Her proposal would force funds to abandon their fixed $1 share price or introduce withdrawal limits and capital buffers.
Without the changes, money funds remain susceptible to runs, Schapiro told the Senate Committee on Banking, Housing and Urban Affairs in June.
"It is essential we address this risk now rather than waiting until the middle of the next crisis," she said.
Schapiro has received public backing from Boston Federal Reserve Bank President Eric Rosengren and New York Fed President William Dudley.
Death Choice
The Boston Fed this month released a report showing that at least 21 money-market funds got support from their sponsoring companies to prevent shares from falling below the fixed $1 price during the financial crisis. "The status quo is not acceptable," Rosengren said in an April speech.
"Reforms are necessary to protect the economy from financial instability in the future," Dudley wrote in a Bloomberg View column Aug. 15.
Donahue, on a conference call with investors in January, said the SEC proposals would destroy the industry and likened the two main ideas -- floating prices and capital buffers -- to a choice between dying "by hanging or by bullet." He threatened legal action to block the rules from being implemented.