Legislation to regulate money market funds, that conceivably could end their operations in Maryland, appeared headed for defeat today after investors and representatives of banks and savings and loans objected at a public hearing.
The proposed legislation would require that investments in money market funds in Maryland be insured, although they are not insured elsewhere. Federal regulations require all mutual fund investors to be treated the same. Since the funds could not insure Maryland investors without insuring those in other states, the funds would be likely to pull out of Maryland if the law were passed, opponents of the bill said.
Members of the Senate EconomicAffairs Committee also were told during the hearing that the bill ran counter to the national deregulation trend.
When the hearing was over, Committee Chairman Harry McGuirk (D-Baltimore), who introduced the bill, said it would be killed in committee later and possibly replaced by less stringent legislation. Any new proposal would require only that money market funds advertise that fund investments are uninsured and could be lost if the fund goes under.
The hearing in the state capitol produced an unusual alliance between money market fund proponents and the banking and savings and loan industries, who have been hurt financially by the funds. In recent years, droves of investors have transferred their money from traditional savings accounts, which generally pay5 1/2 percent interest, to money market funds, which recently paid as much as17 percent interest.
In more than a dozen states in the last year, bank and savings and loan lobbies have pushed legislation that would curtail the money market funds in an effort to make themselves more competitive. None of those efforts has been successful.
In Maryland, however, where nearly$3 billion has been invested in money market funds according to a recent study by Del. Luiz Simmons (R-Montgomery), the financial institutions have changed strategies in preparation for a major push during next year's General Assembly session to win total deregulation of the banking and savings and loan industries.
Such a goal long has been sought by the powerful bank lobby, but never agreed to by the legislature because of concern that interest rates would skyrocket if banks were uncontrolled.
In order to push for deregulation of their own industry, representatives of savings and loan associations, said it would be hypocritical now to ask that the state begin regulating money market funds.
"Our basic position is that we do not subscribe to the regulation of money market funds," said William Weaver, lobbyist for the Maryland Bankers Association. "The public is entitled to the highest rate of return, but by the same token we strongly urge deregulation of the banking industry."
At the public hearing today, members of the Economic Affairs committee seemed less impressed by the banking lobbyists' reasons for opposing the bill than by the dozens of letters and phone calls in opposition that they had received from constituents.
"I've gotten dozens of letters from people who are worried they're going to get jilted by this," said Sen. Ed Thomas (D-Frederick).