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Friday, September 19, 2008

Treasury to Insure Money-Market Funds

by Calculated Risk on 9/19/2008 08:58:00 AM

From Bloomberg: U.S. Treasury to Insure Money-Market Fund Holdings

The U.S. Treasury plans to use as much as $50 billion from the country's Exchange Stabilization Fund to temporarily protect investors from losses on money- market mutual funds.

The Treasury will insure for a year holdings of publicly offered money-market funds that pay a fee to participate in the program. Retail and institutional funds are eligible, the department said today in a statement.
Update: The Fed is also extending non-recourse loans to certain institutions to buy commercial paper:
The Federal Reserve Board on Friday announced two enhancements to its programs to provide liquidity to markets. One 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.

To further support market functioning, the Federal Reserve also plans 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.