The Fed invoked its emergency powers Tuesday morning to launch a
facility that will buy assets from money market mutual funds that are
having difficulty meeting redemptions from their investors.
The new
program, dubbed the Money Market Investor Funding Facility, will
purchase certificates of deposit, bank notes and commercial paper with
a remaining maturity of 90 days or less from mutual funds. The Fed will
lend a maximum of $540 billion to the vehicles, which will finance 10%
of their purchases by selling asset-backed commercial paper. The
remaining 90% will be lent by the New York Federal Reserve on an
overnight basis at the discount rate, currently 1.75%. The
special purpose vehicles will buy debt with ratings of at least
A1/P1/F1 and will run until April 30 unless extended. The program's
starting date should be announced this week.
The Deal's Donna Block writes:
The funds, which normally peg
their share prices at a dollar, were previously considered ultra-safe.
But recently, the shares of a small number of the funds fell under a
dollar as their investments deteriorated. Others have been loath to
make new investments because they were not sure they could resell the
new loans if they needed to raise cash for redemptions.
The MMIFF is just the third
in a series of Fed actions designed to bolster the short-term debt
market and keep investors from pulling out of money market mutual
funds. The Fed previously
announced the Commercial Paper Funding Facility, which will begin
funding purchases of highly rated, U.S.-dollar denominated,
three-month, unsecured and asset-backed commercial paper on Oct. 28, as
well as the Asset Backed Commercial Paper Money Market Mutual Fund
Liquidity Facility, which extends loans to banking organizations to
purchase asset-backed commercial paper from money market mutual funds.
About $500 billion has
flowed out of prime money market funds since August, according to the
Federal Reserve. -
George White
Details of the Federal Reserve Board's latest lending facility geared at buying commercial paper from money market mutual funds are starting to leak out. The Fed is setting up five special purpose vehicles to be managed by J.P. Morgan Chase & Co. that will have up to $600 billion of purchasing power. 
