Schapiro's plan would force funds to abandon their fixed $1 share price or introduce withdrawal limits and capital buffers, a move industry executives say would destroy the $2.5 trillion product. Floating net-asset values would be a "significant improvement" over the stable $1 share price because "it would reduce the incentive for shareholders to get out early in times of stress," Dudley said. "But it wouldn't eliminate the incentive to run altogether."

The SEC passed rules in 2010 that introduced liquidity minimums, new disclosures and shorter maturity limits. Congress has since prohibited the Treasury from acting similarly again and restricted the Fed's ability provide emergency liquidity.

Regulators say they worry that money funds, the biggest source of short-term credit in the U.S., remain vulnerable to investor runs and could again further destabilize markets during a crisis.

"Contrary to what some in the industry suggest, run risk didn't end when the SEC sensibly tightened rules on money-fund holdings in 2010," Dudley wrote.

Doubting 'Demise'

He also disputed the industry's contention that Schapiro's plan would destroy the appeal of money funds and deprive companies, cities and states of a valuable source of funding.

"I seriously doubt that the reforms I propose would lead to the demise or even the radical restructuring of the money- market-fund industry," he wrote.

Moody's Investors Service said today that the credit profiles of money funds denominated in U.S. dollars, British pounds and euros deteriorated in the second quarter due to "credit pressures on financial institutions in both Europe and the U.S."

About 8 percent of the underlying investments by U.S. dollar funds shifted to A2 from A1 or higher rated securities "mostly due to the credit deterioration of banks and securities firms with global capital markets operations," the rating company said in a statement. Euro-denominated funds saw a similar shift in 20 percent of investments.

Aguilar's Vote

Schapiro's plan is supported by commissioner Ellise B. Walter and opposed by Troy Paredes and Daniel M. Gallagher. Luis A. Aguilar has signaled his opposition without saying whether he would kill it before inviting public comment.