Given the size of the Money Market Fund (MMF) industry and its importance in allocating short-term funding to financial institutions, limiting its vulnerability to investor flight is an important step in reducing fragility in financial markets.
An MMF is a type of mutual fund that is required by SEC rules to invest in low-risk securities, such as government securities, certificates of deposit and commercial paper. Unlike a “money market deposit account” at a bank, MMFs are not insured. MMFs seek to maintain a stable “net asset value” (“NAV,” ie the price at which MMF investors can redeem their shares) at usually $1.00 per share, but the NAV may fall below $1.00 per share and thus, investor losses, while rare, are possible.
During times of financial market stress, some financial assets in which MMFs invest may decline in price, or may become difficult to price at all. This may provide an incentive for investors to redeem their shares at the first signs of risk to their initial investments. As a result, these usually stable investment vehicles may become subject to shareholder runs.
The Federal Reserve Bank of New York contributes to the discussion on MMF reform through its analysis of current MMF vulnerabilities and their contribution to systemic risk, as well as its analysis and comment on various MMF industry reform options.
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Learn about the history of the New York Fed and central banking in the United States through articles, speeches, photos and video.
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The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
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The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
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The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
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Money Market Funds
Speech
Liberty Street Economic Blog
December 23, 2013
October 9, 2013
March 6, 2013
October 15, 2012
June 11, 2012
Research
April 2014
February 2013
July 2012
Contacts
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Chronology of Key Events
September - October 2008
Run on (institutional) prime MMFs. Treasury guaranteed MMF assets, and the Federal Reserve introduced the Asset-Backed Commercial Paper Money Market Fund Liquidation Facility (AMLF) and the Commercial Paper Funding Facility (CPFF).
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January 2010
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October 2010
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July 2011, July 2012
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August 2012
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September 2012
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November 2012
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January 2013
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April 2013
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