Federal Reserve Gives Emergency Aid to Mutual Funds

Money market mutual funds are the vehicles that millions of Americans use to save money that can be readily tapped. Their total value is about $3.8 trillion, according to the latest data from the Investment Company Institute.

With its move late Wednesday, the Fed was trying to prevent a recurrence of events that happened in September 2008, when a major money market fund, the Reserve Primary Fund, suffered huge losses on short-term Lehman Brothers debt and “broke the buck,” meaning its value fell below the customary $1 per share.

That event, shortly after Lehman Brothers filed for bankruptcy protection, accelerated the freeze-up of credit across the economy and deepened the financial crisis.

This week, the Fed reintroduced a program to support the commercial paper market, short-term debt that large companies use to finance their operations. The support for money markets is the flip side of that program; money market funds invest in commercial paper.

That program is intended to ensure companies that they can keep getting the dollars they need to operate, while the new program is focused on ensuring investors in money market funds that their money is safe.

Article source: https://www.nytimes.com/2020/03/18/business/federal-reserve-mutual-funds-coronavirus-aid.html