What Was the Money Market Investor Funding Facility?

The Money Market Investor Funding Facility (MMIFF) was a financial entity created by the Federal Reserve in the middle of the financial catastrophe of 2008 to spice up the liquidity on the market for money market investments.

Understanding the MMIFF

The Money Market Investor Funding Facility (MMIFF) existed from November 24, 2008, by October 30, 2009. All through that time, the Federal Reserve Monetary establishment of New York accredited 5 explicit objective autos (SPVs) to purchase as a lot as $600 billion in short-term debt units from private-sector financial institutions. Eligible property included extraordinarily rated money market units with maturities between seven and 90 days held in U.S. money market mutual funds and valued at a minimal of $250,000.

The Federal Reserve Monetary establishment supported the SPVs by loaning 90% of the acquisition value of each asset to the SPVs, which issued asset-backed enterprise paper to cowl the remainder of the related charge. As a result of the debt matured, the MMIFF used the proceeds to repay every the Federal Reserve Monetary establishment and the MMIFF’s wonderful ABCP cash owed. Funding from the SPVs supported 50 designated financial institutions masking a broad geographic distribution and acknowledged by commerce leaders as high-quality issuers of short-term debt with which the money market funds already did enterprise.

The Federal Reserve took these actions in response to liquidity fears amongst money market consumers and mutual funds, which flooded the short-term debt markets. By establishing the MMIFF, the Federal Reserve sought to broaden secondary-market product sales of medium-term units equal to certificates of deposits, monetary establishment notes, and intensely rated enterprise paper.

Liquidity in Money Markets

Money market funds normally characterize a gentle, low-risk funding. They search to hold web asset value (NAV) of deposited funds at $1, nonetheless as a result of the Federal Deposit Insurance coverage protection Firm (FDIC) does not insure money market funds, consumers can theoretically lose money by investing in them. By the financial catastrophe of 2008, the collapse of Lehman Brothers drove one money market fund’s NAV all the way in which right down to $0.97 after writing off debt. The US Treasury lastly stepped in to insure shopper security for funds that fell beneath $1, staving off a attainable cash run.

Institutions cautious of runs on their money market funds elevated their liquidity positions by investing additional of their holdings in very short-term property, significantly in a single day positions. The Federal Reserve Monetary establishment established the MMIFF to provide additional sources of liquidity to money market funds at longer durations. This helped the funds to maintain up relevant liquidity circumstances whereas on the same time relieving the short-term debt markets from the strain positioned on them by the unusually extreme number of short-duration investments seen from money market consumers.