US program aims to protect money market funds
The US government imposed emergency protections on money market mutual funds to staunch the withdrawal of billions of dollars from these accounts and to prevent investors from losing money on their deposits.
The US Treasury Department said today it would provide up to $50 billion in insurance coverage for money market funds. The funds' investment managers would have to pay a fee to receive the government insurance. Unlike bank accounts, money market mutual funds are investment vehicles that are not insured and are at risk of losing money.
Separately, the Federal Reserve said it would extend loans to US institutions and banks to finance purchases of certain securities that money market funds are trying to sell in order to raise cash to meet redemption requests by investors.
Both steps are intended to keep the per-share price of a money market fund stable at $1, so the value of the deposits remains intact. At least five money-market and related funds this week saw their net asset value drop below the sacred $1 a share mark, the so-called "breaking of the buck" that sparked a major run on funds nationwide as investors sought to prevent losses.
The run on funds caused Boston-based Putnam Investments yesterday to close a $12.3 billion money market fund offered to corporations and other institutional clients. Other local investment firms, including Evergreen Investments and the Columbia funds unit of Bank of America, took steps this week to ensure their value of their money market funds did not breach the $1 a share level.
(By Ross Kerber, Globe staff)
