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Tuesday, November 11, 2008

Money Funds are MMIFFed Over Fed Delay

Reported by InvestmentWires Staff, 

Many in the money-market fund industry were expecting The Federal Reserve's plan to shore up money funds to take effect last week, but the Fed has instead delayed the implementation of the Money Market Investor Funding Facility (MMIFF) to later this month, The Wall Street Journal's Diya Gullapalli reports.

Fed officials said Monday that the Federal Reserve Bank of New York will begin funding purchases of eligible money market instruments on or about November 24. The announcement, issued Monday (see the full press release below), made no mention of the reason for the delay.

In her article, Gullapalli offers a possible reason: the delay, she writes, is apparently due to the Fed's "preoccupation with other bailouts and wrangling over how the money-fund program will be set up."

In October, the Fed unveiled MMIFF, under which five investment vehicles, run by JPMorgan, will buy short-term debt from money funds. The Fed will finance purchases of as much as $540 billion (see The MFWire, October 21, 2008).

The five facilities will purchase assets issued by 50 financial institutions and if any of these institutions fail in a vehicle, the money funds would have to share the losses. Some money funds have said it isn't fair that they could be sharing the losses if they did not purchase the paper of an issuer that ended up failing, Gullapalli reports.
New York Fed Press Release

November 10, 2008

The Federal Reserve Bank of New York on Monday announced it would begin funding purchases of eligible money market instruments on or about November 24, 2008 through the previously announced Money Market Investor Funding Facility (MMIFF). Additionally, the frequently asked questions and terms and conditions documents have been revised to provide further details, including enrollment information for eligible investors.

The Federal Reserve Board authorized the MMIFF on October 21, 2008 to support a private-sector initiative designed to provide liquidity to U.S. money market investors. The MMIFF is intended to improve liquidity in short-term funding markets and thereby increase the availability of credit.

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