Fed bolsters money market funds

Oct 21, 2008 @ 1:56 pm

By Andrew Coen

In another attempt at defrosting frozen credit conditions, the Federal Reserve today announced a financing program aimed at bolstering the struggling money market mutual fund industry.

The new Fed program, called the Money Market Investor Funding Facility, is designed to support a private-sector initiative aimed at providing liquidity to money market investors.

The central bank is planning to back purchases of short-term debt, such as certificates of deposit and commercial paper that expires in 90 days or less, from money market mutual funds.

The Fed said it is prepared to provide up to $540 billion in financing for the facility, according to published reports.

“By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments,” the Fed said in a statement.

The Investment Company Institute of Washington expressed support for the program, saying in a statement today, “It will help restore normal functioning to the credit market.”

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