What Was the Money Market Investor Funding Facility?

The Money Market Investor Funding Facility (MMIFF) was established by the Federal Reserve in 2008 in response to the financial crisis to enhance liquidity for money market investments.

Understanding the MMIFF

Running from November 24, 2008, to October 30, 2009, the MMIFF was authorized by the Federal Reserve Bank of New York. It empowered five special purpose vehicles to purchase up to $600 billion in short-term debt instruments from private financial institutions. Eligible assets included highly rated money market instruments with maturities between seven and 90 days valued at a minimum of $250,000.

The Federal Reserve Bank supported these special purpose vehicles by loaning 90% of the asset purchase price, with the remaining cost covered by asset-backed commercial paper. As debts matured, proceeds were used to repay the Federal Reserve and the outstanding ABCP debts. This funding backed 50 financial institutions across the U.S. identified for their quality by industry leaders.

The MMIFF was initiated to address concerns about liquidity in money market funds amid the financial crisis. By facilitating the sale of medium-term instruments like certificates of deposit and commercial paper, the Federal Reserve aimed to stabilize the markets.

Liquidity in Money Markets

Money market funds are traditionally considered safe investments, aiming to maintain a $1 net asset value. However, the 2008 financial crisis revealed vulnerabilities, with the collapse of Lehman Brothers impacting fund values. To prevent further instability, the U.S. Treasury stepped in to protect funds falling below $1.

In response to market uncertainties, institutions heightened liquidity by investing in short-term assets. The MMIFF, established by the Federal Reserve, provided essential liquidity for money market funds, enabling stable market conditions and alleviating pressures on short-term debt markets.