The
The Treasury make the extraordinary move as investor concerns over
Money market fund investors headed for the exits this week withdrawing $90 billion on Wednesday and $140 billion the week prioron fears that other funds, like the Primary Fund, the oldest money market fund in the nation, would fall below its $1 net asset value. The Reserve shocked the industry Tuesday with the news Primary Fund's NAV was worth 97 cents due to $785 million of worthless
Fears extended to
Money market industry experts welcomed the news of the federal government insurance fund. Fifty billion should be more than enough to let those very frightened shareholders relax a bit, said Connie Bugbee, managing editor of
Money market funds play an important role as a savings and investment vehicle for many Americans, the Treasury said. They are also a fundamental source of financial for our capital markets and financial institutions. Maintaining confidence in the money market fund industry is critical to protecting the integrity and stability of the global financial system.
As short-term interest and funding rates rose sharply in recent days, this has contributed to the volatility in exchange markets and threatened global instability, the Treasury said.
The government established The Exchange Stabilization Fund in 1934 through the Gold Reserve Act. Through the new insurance program, should a money market fund fall below $1 in value, the government will step in to make the NAV whole and inform investors of the action.
Separately, the Federal Reserve announced Friday it will lend $300 billion to commercial banks so that they will be able to repurchase asset-backed mortgage instruments from investors, with money market funds holding $230 billion of that debt.
Meanwhile, just before 7 p.m. Thursday evening, The Reserve announced it would no longer accept new purchases in 23 funds until further notice. As it had done for its flagship Primary Fund, The Reserve said it would not issue proceeds from redemption requests of $10,000 or more for up to seven days.
Assets of money market mutual funds decreased by $169.03 billion to $3.413 trillion for the week ending Sept. 17, according to the
Retail-class assets increased by $4.28 billion to $1.240 trillion, assets of taxable retail funds increased by $5.97 billion to $935.92, and assets of tax-exempt funds decreased by $1.69 billion to $304.51 billion.
Assets of institutional-class funds decreased by $173.31 billion to $2.172 trillion, taxable-fund assets decreased $165.06 billion to $1.978 trillion, and assets of tax-exempt funds decreased by $8.24 billion to $193.90 billion.