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Senator urges lobbying against money market reform

By Sarah N. Lynch

WASHINGTON (Reuters) - Senator Pat Toomey is urging businesses to push back against efforts by U.S. securities regulators to impose new rules on the money market fund industry, which he says could "wipe out" the products.

Speaking to an audience at the U.S. Chamber of Commerce on Wednesday, he expressed frustration that the U.S. Securities and Exchange Commission is trying to move ahead on sweeping money market fund reforms.

"I think that money market funds are under attack. I think there is a concerted effort to impose very, very, very troublesome regulations that in some cases I think do threaten the viability of the product itself," said Toomey, a Pennsylvania Republican and member of the Senate Banking Committee.

"I think we should push back very aggressively."

Toomey said he would consider introducing legislation pushing back on the reforms, if necessary.

The $2.6 trillion money market fund industry came under scrutiny during the financial crisis after a run on the Reserve Primary Fund caused it to "break the buck" when its net asset value fell below the $1-per-share mark.

The SEC moved to shore up the industry with new regulations in 2010, including tightening credit quality standards, shortening the maturities of fund investments and imposing a new liquidity requirement.

But SEC Chairman Mary Schapiro and banking regulators have said those are not enough. Staff at the SEC last month circulated two early draft plans for either a capital buffer coupled with a holdback on redemptions or a floating fund valuation.

The two competing plans have met with some resistance internally from three SEC commissioners, and they have also prompted a major backlash from money market fund industry players and U.S. businesses that rely on the funds for their short-term funding needs.

Critics say the recent regulations adopted in 2010 have worked well so far, and that money market funds have since weathered some major storms such as the European debt crisis.

They also fear redemption holdbacks, capital buffers or other changes could drive investors out of money market funds into bank accounts.

There have also been warnings that the reforms intended to reduce risk could unintentionally do the opposite by stoking another round of consolidation in the industry.

On Tuesday, the U.S. Chamber and a group of corporate treasurers took to Capitol Hill to meet with lawmakers to discuss their concerns about the money market fund proposals. Later on Wednesday, they are expected to head to meetings with U.S. regulators.

Toomey said if the SEC proceeds with some of the reforms in the works, he will call for congressional hearings to "give as much public scrutiny to this as possible."

(Reporting By Sarah N. Lynch, editing by Dave Zimmerman)

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