Some things in life are quite simple. Like the childhood analogy that illustrates deductive reasoning, “if it walks like a duck and quacks like a duck, it must be a duck.” Money market mutual funds have guaranteed the value of deposits, paid interest, and allowed withdrawals through checks. Acting like deposit accounts at banks, but avoiding the regulation, and insurance used to stabilize runs on banks. A great deal if your the manager. But what acts like a bank should be a bank.
Future regulation should call a bank a bank. If you take someones money with a guarantee of principle—the accounting practices that force the value everyday to one dollar per share act as a guarantee—then the regulation insuring safety of capital should apply. Bernanke is wrong to suggest a limited regulation. Consumers will not treat money market accounts as a hybrid product, why should the regulators?