With each passing day that the SEC cannot agree on how to strengthen the rules governing money market funds, the likelihood grows that the government will have to bring in a "relief regulator" to resolve the conflict.  And remember, this isn't your everyday 800 pound gorilla we're talking about - it's a $2.6 trillion mountain of short-term investments. If the SEC can't reach an agreement, the Financial Stability Oversight Council may take the initiative to step in and decide that the money market industry needs to officially be designated as "systemically important."  Faced with such a threat, which the SEC would probably view as a slap at its authority, just might be the tonic that the SEC Commissioners need to subordinate their differences and propose new rules based on a consensus. Karen Shaw Petrou, for one, expects the "FSOC to declare money market funds" systemically significant "if it becomes clear the SEC cannot act."  She's the co-founder and managing partner at DC-based Federal Financial Analytics Inc., a regulatory consulting firm.  "And I expect them to do so by the summer." SEC Chairman Mary Schapiro has warned since November that a run on money-market firms could damage the economy, a view shared by the Obama administration and other regulators.  But she hasn’t been able to convince a majority of her fellow commissioners to join her on tighter rules that could include capital requirements or a change to the industry’s traditional $1 share price. SEC spokeswoman Judith Burns declined to comment on the prospect of an FSOC intervention.  Treasury spokesman Anthony Coley wouldn’t comment on behalf of the FSOC. Fed Pressure. Other regulators, particularly those at the Federal Reserve, are stepping up the pressure on the SEC to act soon.  In an April 9 speech at a Federal Reserve Bank of Atlanta conference, Chairman Ben Bernanke said that though the SEC strengthened rules on money-market funds in 2010, more needs to be done.  "The risk of runs remains a concern." And, he added: "Additional steps to increase the resiliency of money-market funds are important for the overall stability of our financial system and warrant serious consideration." Concern over money funds, once seen as among the safest of investments, grew after the September 2008 collapse of the $62.5 billion Reserve Primary Fund (REPXX), which triggered a broader run that contributed to a freeze in global financial markets.  The run calmed only after the Treasury Department temporarily guaranteed money-fund shareholders against losses and the Fed began buying fund assets at face value to help them meet redemptions. Trillions in Assets. On a combined basis, all U.S. money funds now hold some $2.56 trillion in assets - including $919 billion in institutional prime funds, according to research firm Mass-based iMoneyNet - that includes JPMorgan Prime Money Market Fund (CJPXX), Fidelity Cash Reserves (FDRXX) and Vanguard Prime Money Market Fund. (VMMXX). The rules the SEC adopted in 2010 introduced liquidity minimums, average maturity limits and new disclosure requirements.  Further options could include ending the funds’ traditional $1 share price - although the stable price is a central selling point for the funds, critics say it also makes them more vulnerable to runs because investors are likely to flee after even small losses that don’t immediately reduce the $1 share value. At the Fed conference this week, Eric Rosengren, the president of the Federal Reserve Bank of Boston, dedicated an entire speech to the links between money-market funds and financial stability. Still, Republican SEC Commissioners Daniel Gallagher and Troy Paredes, remain opposed to new rules.  In several recent speeches, Mr. Gallagher has outlined a philosophy of keeping the SEC out of debates over whether a particular company or industry poses a systemic risk to the economy. "Contrary to the perceptions of some, we are not systemic risk regulators," Mr. Gallagher said March 8 at an investor adviser conference in Arlington, Virginia.  "Dodd-Frank created the Financial Stability Oversight Council to take on that systemic risk role and although the SEC chairman is a member of the FSOC, the Commission is not.  Given the SEC’s mission and the nature of investing in securities, the commission cannot -- and should not -- endeavor to eliminate risk-taking." Swing Vote. Commissioner Luis Aguilar, a Democrat, is now seen as the swing vote, because he's been uncommitted.  Aguilar was the general counsel at money-management firm Invesco Ltd. (IVZ) during the 1990s. The SEC also has been hobbled because of intense opposition to additional regulation from money-market funds.  Christopher Donohue, the CEO of Pittsburgh-based Federated Investors Inc. (FII), the third-biggest U.S. money fund provider, said Jan. 27 that his firm would sue the SEC if it went forward with a proposed rule. Time will tell who blinks first.  It is not clear whether Ms. Schapiro would be the first - to be willing to cede work on one of her signature issues to regulators at other agencies, Hurley said.  That underscores why Congress created the FSOC as part of the 2010 financial-regulatory overhaul. "We’ve witnessed instances in which agencies are captured by the industries they regulate,” he said.  "Schapiro is trying to push back against that and having difficulty mustering a majority to do it.  This is the proper role of FSOC to take a more eclectic view." For further details, go to:  [Bloomberg, 4/12].