For decades money-market mutual funds were investments you didn't think much about. They were boring but didn't lose money. The value of each fund's "share" was always $1, regardless of what the underlying assets were worth. And the fund paid interest on the money you invested, usually a little more than what you could get in a bank certificate of deposit. All that change during the financial crisis when one of the biggest money-market funds, the Primary Reserve Fund, "broke the buck," and fell below $1 a share. People then realized that money-market funds weren't insured, either. Ever since, regulators and fund industry executives have looked for ways how to prevent similar debacles in the future.

Money-market funds were a hot topic at the Mutual Funds and Investment Management conference in Phoenix this week. SmartMoney sat down with Paul Stevens, president and chief executive of the Investment Company Institute, a mutual fund industry trade group, to talk about what options there are for modifying one of the most commonly held forms of mutual fund, including his group's position: creating a pool of cash, funded by the money-market industry, as a backstop for the funds.

SmartMoney: The Investment Company Institute created a working group during the financial crisis to look at ways to strengthen money-market funds. Why did you feel this was necessary?

Paul Stevens: Money-market funds account for more than one-quarter of the assets in mutual funds now, so it is a huge segment of our business. More importantly, they were the part of the business that was hit in the fall of 2008, and they've been the focus of a great deal of regulatory attention. The Securities and Exchange Commission, the Federal Reserve and the Treasury Department are all continuing to mull over what steps to take to make sure that money-market funds will be safe in tough market conditions.

SM: One idea that the SEC has suggested is allowing money-market funds to have variable share prices, just like other mutual funds. They would no longer have the share price of $1. In that case, how would money-market funds be different from short-term bond funds?

PS: They wouldn't be.

SM: Why does the Investment Company Institute oppose this idea?

PS: If net asset values were allowed to fluctuate, individual investors would be deprived of what has become a vitally important vehicle for managing their cash. These funds had their inception in the 1970s. At that time, individual investors didn't have access to high-yielding money markets. All they had was demand deposit accounts. That may not seem like an important distinction now, because yields are so low. But as interest rates move up -- and clearly they will, particularly if we get into an inflationary environment -- then it would be a real loss if investors were unable to buy money-market funds.

SM: The SEC has already made some regulatory changes to strengthen money-market funds. For example, it is requiring fund managers to begin stress testing their portfolios in May. How do you think this will impact money-market funds, particularly the smaller ones?

PS: A stress test is simply an analysis of the portfolio against hypothetical events to determine what it can stand. A lot of managers are already doing this, so I don't think it should be a dramatic change.

SM: There has been a spike in money-market fund closures. For example, 123 money-market funds have either been liquidated or merged out of existence since September 2008, according to Lipper. Why are so many of the funds closing up shop?

PS: The economics of money-market funds have become very difficult, because of the low interest rate environment. Some of the fund companies have been eating the costs. This shows the importance that the mutual fund community places on these funds.

SM: So why do they keep subsidizing money-market funds?

PS: Historically, this has been a good arrow in the quiver of companies that are trying to build up a fund family. They don't look at their money-market funds in isolation, but as part of a full product line.