The U.S. Treasury Department today announced the establishment of a temporary guaranty program for the U.S. money market mutual fund industry. For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund – both retail and institutional – that pays a fee to participate in the program.
President George W. Bush approved the use of existing authorities by Secretary Henry M. Paulson Jr. to make available as necessary the assets of the Exchange Stabilization Fund for up to $50 billion to guarantee the payment in the circumstances described below.
Money market funds play an important role as a savings and investment vehicle for many Americans; they are also a fundamental source of financing 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.
Also, the Federal Reserve Board on Friday announced two enhancements to its programs to provide liquidity to markets.
The first initiative will extend non-recourse loans at the primary credit rate to U.S. depository institutions and bank holding companies to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds. This should assist money funds that hold such paper in meeting demands for redemptions by investors and foster liquidity in the ABCP markets and broader money markets.
The second initiative will allow the Federal Reserve to purchase from primary dealers federal agency discount notes, which are short-term debt obligations issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The Open Market Trading Desk (Desk) will begin purchasing short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks in the secondary market for the System Open Market Account.
Similar to secondary market purchases of Treasury securities, purchases of Fannie Mae, Freddie Mac and Federal Home Loan Bank debt will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions via the Desk's FedTrade system. A series of purchase operations are planned over the next several weeks.
Compiled from Treasury Department and Federal Reserve Bank press statements
