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Treasury Clarifies Its Money Market Fund Guaranty Program

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The Treasury issued a new press release on Sunday clarifying its new Guaranty Program for Money Market Funds which they first announced on Friday. Two important clarifications include:
  • Eligible funds include both taxable and tax-exempt money market funds
  • The temporary guaranty program will be designed to provide coverage to shareholders for amounts held by them in such funds as of the close of business on September 19, 2008.
As this Bloomberg article describes, the banking industry had pushed for this limit of the guarantee. The banking industry worried that there would be a mass outflow out of bank accounts which have FDIC limits on coverage to money market funds which would essentially provide unlimited insurance. So the Treasury complied and made the coverage apply to only existing balances. As this article explains, there are still many questions, and the Treasury is suppose to provide more details about the program in the coming days.

It's important to note that money market funds are different than money market accounts. Money market account is basically the same as a savings account which is FDIC-insured and offered by banks. Money market fund is a mutual fund holding a collection of short-term debt investments, and it is not FDIC insured.


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Comments
6 comments.
Comment #1 by Anonymous posted on
Anonymous
Sounds unworkable. Say you take 100k out of the MM account and then put it back in a week later.

Not covered.

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Comment #2 by Anonymous posted on
Anonymous
That would be still be covered, as long as you had at least 100k in the MMF as of close of business Sep 19.

1
Comment #3 by Anonymous posted on
Anonymous
Any proposals/official discussion of increasing FDIC limits?

1
Comment #4 by Anonymous posted on
Anonymous
Seems like the best solution would have been to limit the coverage for the money market funds to $100K per person just like the FDIC. I know that is an extremely low limit, but it is not really fair to now cover a MMF with $1M while still only covering $100K in a bank.
With a democratic congress and if Obama gets in there definately wont be an increase in the FDIC limit !!!

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Comment #5 by Anonymous posted on
Anonymous
This just seems really half-assed. If they guarantee money markets, it's just going to take money from the banks -- who really need it.

1
Comment #6 by Anonymous posted on
Anonymous
9:35, did you read the post? New money will not be covered, so there is no reason to pull money from FDIC accounts and put in MM funds.

[quote]The temporary guaranty program will be designed to provide coverage to shareholders for amounts held by them in such funds as of the close of business on September 19, 2008.[/quote]

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