Treasury extends guarantees for money market funds

The Treasury Department on Tuesday extended a temporary guarantee of money market mutual fund assets initially put in place during the height of the financial crisis. The guarantee, which will run through Sept. 18, had been scheduled to expire April 30. It was instituted in September, after Lehman Brothers filed for bankruptcy protection, to prevent a rash of withdrawals from money market funds. The funds, which are held by large institutional investors and millions of individuals in brokerage accounts, generally are considered as safe as cash and provide a modest return. But Lehman's bankruptcy caused many investors to withdraw their holdings from a fund run by Reserve Management Co. that owned Lehman debt. That caused the Reserve fund's shares to fall below a dollar, a rare occurrence in the money market industry known as "breaking the buck." The Treasury issued the guarantee Sept. 19, and has now extended it twice. While the guarantee covers the $3 trillion in fund assets that were in place as of Sept. 19, 2008, its losses are limited to $50 billion. Separately, the department said it injected $193 million into 14 banks as part of the $700 billion bank rescue program. The largest infusion was $70 million to Glenwood Springs, Colorado-based Alpine Banks of Colorado. The smallest amount was $574,000 to Colonial American Bank in West Conshohocken, Pennsylvania. The Treasury has now invested $198.8 billion in 532 banks. The payments were made Friday but not disclosed until Tuesday. Under the legislation Congress passed last October to set up the bailout fund, the government has two business days to report any new transactions. The Bush administration set a target of using $250 billion of the first $350 billion in bailout support to purchase preferred stock in banks as a way of bolstering their capital reserves so that they would resume more normal lending. The Obama administration has promised to attach more strings to the assistance than the Bush administration did, but has not said how much of the second half of the fund will be used for bank stock purchases.