Agencies Initiate Assistance for Money Market Funds
Recent market volatility due to the Coronavirus crisis has been punishing to certain money market funds. While regulatory reforms in 2016 appear to be helping the instruments, particularly the highest-tier money market funds, the lower tier investments are not faring as well, according to media reports. Bloomberg is reporting that the U.S. Treasury department sent a proposal to lawmakers that would temporarily permit use of its exchange stabilization fund to guarantee money markets with taxpayer dollars. The Federal Reserve then said in a release that it would offer emergency loans to money market mutual funds by establishing a Money Market Mutual Fund Liquidity Facility, which would be backed by $10 billion from the Treasury Department. That program joins a similar lending one for banks, established this week, according to the New York Times. Most of the money fund sector’s assets are held in Treasurys, which have remained stable so far in the market upheaval, while second-tier money funds have experienced large outflows, according to Bloomberg. According to lawyers from Wilmer Hale, only prime money market funds are eligible for the relief. The Wilmer Hale client alert answers key questions about the relief, including how the current crisis is different from the 2008 financial crisis.