Fed's Rosengren says liquidity tool meant to prevent run on prime money market funds

FILE PHOTO: The Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren speaks in New York, April 17, 2013. REUTERS/Keith Bedford/File Photo

The Money Market Mutual Fund Liquidity Facility unveiled on Wednesday night is meant to boost confidence in money market funds and to prevent funds from having to sell assets in a “fire sale” to meet redemption requests, which could lower their value, Rosengren said in an interview with Reuters on Thursday.

The facility will make up to one-year loans to financial institutions that pledge as collateral high-quality assets, such as U.S. Treasury bonds, that they have purchased from money market mutual funds. The central bank slashed rates on Sunday to near zero and announced it will purchase at least $700 billion in Treasury securities and mortgage-backed securities to improve market functioning. The Fed has also revived or adjusted several programs used during the 2007-2009 financial crisis to boost liquidity, including launching a commercial paper funding facility and opening dollar swap lines with more central banks.

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