Bankin’ Bits

Treasury Winds Down Money Market Fund Guarantee

September 18, 2009

As expected, the United States Department of the Treasury is allowing the Guarantee Program for Money Market Funds (the “Program”) to expire. Initially established for a three-month period that could be extended up through September 18, 2009, the Program was aimed at soothing worried money market investors during the market turmoil that exploded in September 2008. Treasury designed the Program to stabilize markets after a large money market fund’s announcement that its net asset value had fallen below $1 per share (“broke the buck”) in the wake of the failure of Lehman Brothers in September of 2008.
Treasury Secretary Timothy Geithner spoke about why Treasury was not seeking to extend the Program further, noting that “As the risk of catastrophic failure of the financial system has receded, the need for some of the emergency programs put in place during the most acute phase of the crisis has receded as well. The Guarantee Program for Money Market Funds served its purpose of adding stability to the money market mutual fund industry during market disruptions last fall and ultimately delivered a healthy return to taxpayers.”
Treasury has had no losses under the Program and earned approximately $1.2 billion in participation fees. In the spirit of giving credit where credit is due, nice work Treasury.

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