Interest rates near a record-low have forced money fund providers to waive fees on some funds to prevent yields from turning negative, which has undermined profitability.
Making Acquisitions
Federated has risen 1.3 percent since the Federal Reserve lowered its target rate to a range of zero to 0.25 percent in December 2008, compared with the 26 percent average gain for the Standard & Poor's 20-member index of asset managers and custody banks. The firm has continued to make acquisitions during that time, including a pending deal announced in April to acquire $5 billion in money-fund assets from Cincinnati-based Fifth Third Bancorp.
Donahue, at the June hearing, sparred with David Scharfstein, a finance professor at Harvard Business School and member of the Squam Lake Group of academics who have recommended steps to strengthen the U.S. financial system.
When Scharfstein, in response to questioning, said money funds should have to raise capital equal to 2 percent to 3 percent of their assets, Donahue said, "The math doesn't work." In the interview, he said of the suggestion, "It's totally brain dead. It would be too expensive."
On 'Fringe'
Donahue is "on the fringe of the industry," Scharfstein said in an interview.
It's up to academics and regulators to challenge vested interests opposing change, according to Scharfstein.
"We need a safer system," he said.
The SEC has yet to set a date to vote on Schapiro's proposals, John Nester, a spokesman, said in an e-mail. Schapiro has the support of Democrat Ellise B. Walter at the SEC, while Republican commissioners Troy A. Paredes and Daniel M. Gallagher have said they oppose the plan. Commissioner Luis A. Aguilar, who was reappointed last year by President Barack Obama, has signaled his opposition without saying whether he would kill it before inviting public comment.