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Fidelity, Vanguard discuss money fund backstop: report

CHICAGO
Sat Sep 19, 2009 3:12pm EDT

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CHICAGO (Reuters) - Fidelity Investments and Vanguard Group Inc. are among those discussing the creation of a cash reserve to blunt a run on money markets like the one that occurred last September, according to a report by Bloomberg on Saturday.

Attributing the information to anonymous sources, Bloomberg said the companies may set up a cash reserve to be known as Liquidity Exchange Bank. The fund would help them handle investor withdrawals during a financial crisis.

Spokesmen for Fidelity and Vanguard declined to comment.

Industry data this week showed that investors stepped up their withdrawals from money market funds in the days before a federal guarantee to safeguard their assets expired on Friday.

The industry proposal would operate much like a Federal Reserve fund, which lends to banks that buy asset-backed commercial paper from money funds, Bloomberg reported.

In an interview with Reuters on Thursday, Federated Investors Inc (FII.N) money market executive Deborah Cunningham said one question is how such a backstop could be funded.

(Reporting by Ross Kerber and Kyle Peterson)


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