Federal Reserve announces it will backstop the U.S. money market industry, its seventh major emergency action this week


By Heather Long, The Washington Post

March 18, 2020


The Federal Reserve announced late Wednesday it is establishing a special backstop for money market mutual funds, which typically serve as risk-free places for investors to store cash.


By establishing the Money Market Mutual Fund Liquidity Facility, the Fed is reprising another weapon from its 2008 arsenal. During the financial crisis of a dozen years ago, there was great concern that these money market mutual funds would not be able to make investors whole.


In recent weeks, investors have been rushing to pull money out of the market, leading to concerns that a wide range of assets could face a run. The Fed has now launched seven emergency actions this week, with the money market liquidity facility announcement occurring at 11:30 p.m.


Under that program, the Fed will make loans to money market mutual funds if they are facing a cash crunch. With this pledge, it’s hoping to assure investors they should have no worries about these funds.


“Money market funds are common investment tools for families, businesses, and a range of companies,” the Fed wrote in a statement. “The MMLF will assist money market funds in meeting demands for redemptions by households and other investors."


The coronavirus health crisis is threatening to become a financial crisis as well as so many businesses — big and small — are on the verge of failing and looking for loans from banks.


Fed Chair Jerome H. Powell has pledged to use every “tool” he has to keep credit available and to try to boost the economy during a swift downturn.


This week, the Federal Reserve has slashed interest rates to zero, restarted its bond-buying program known as “quantitative easing,” started buying...


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