The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
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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.
Services for Financial Institutions Business Development Office
East Rutherford Operations Center firstname.lastname@example.org (800) 257-6701
Choose from a detailed list of contacts for Account Services, Automated Clearing House (FedACH), Fedwire, Saving Bond Service and more. Financial Services Contacts
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).