Treasury Extends Money Market Guarantee Program

April 03, 2009

The U.S. Treasury Dept. has extended its emergency program guaranteeing money market funds through September 18, 2009. The program had been set to end April 30 but was extended on March 31, 2009, "to support ongoing stability in financial markets,” the Treasury Dept. said in a statement.

All funds currently participating in the program are eligible to continue. The program currently covers more than $3 trillion of combined money market fund assets.

The guarantee program was initiated following the collapse of the $62.5 billion Reserve Primary Fund. On September 16, 2008, it became the first money fund in 14 years to drop below $1.

Under this program, Treasury will guarantee that eligible money market fund investors will receive $1 for each money market share held as of September 19, 2008. The program is designed to respond to what Treasury called "temporary dislocations in the credit markets" that came after some money market funds saw their share prices fall below $1, known as "breaking the buck."

The temporary program was initially authorized for three months. This extension is the only one authorized under the current regulations. It provides coverage to shareholders for amounts they held in participating money market funds at the close of business on September 19, 2008.

The program is triggered when share prices fall below $0.995 and the money market fund "breaks the buck". If a participating fund breaks the buck, the fund is required to liquidate within 29 days. After liquidation, Treasury will make a guarantee payment within 30 days.

Only money market funds that are offered at $1 per share and are registered with the U.S. Securities and Exchange Commission are eligible to participate.