Economists from the Federal Reserve Bank of New York published a brief entitled, "Twenty-Eight Money Market Funds That Could Have Broken the Buck: New Data on Losses during the 2008 Crisis." It says, "During the financial crisis in 2008, just one money market fund (MMF) "broke the buck" -- that is, its share price dropped below one dollar. The Reserve Primary Fund announced on September 16 that the value of its shares had dropped to 97 cents. As we discussed in a previous post, Reserve's announcement helped spark a widespread, damaging run on MMFs that slowed only when the federal government intervened three days later to backstop the funds. But new data that we first published in a New York Fed staff report and discussed in a Brookings paper show that at least twenty-nine MMFs had losses large enough to cause them to break the buck in September and October 2008 despite significant government intervention and support of the sector. Five funds or more experienced losses exceeding the 3 percent reported by Reserve, and one fund reported a loss of nearly 10 percent. Among the twenty-nine funds that would have broken the buck without sponsor support, the average loss was 2.2 percent. Yet, the losses for twenty-eight of these MMFs may have gone unnoticed during the crisis, as neither their shareholders nor almost anyone else could have observed their magnitudes at the time. As in other episodes in which MMFs suffered significant losses, the losses were absorbed -- and hence obscured -- by voluntary financial support from MMF sponsors (the MMFs' asset management firms or their parent companies). The extensive record of sponsor support for MMFs does allow us to look back to the 2008 crisis and other periods of strain for indirect evidence about funds' losses. In a 2010 report, Moody's found 144 cases in which U.S. MMFs received support from sponsors between 1989 and 2003. Brady, Anadu, and Cooper (2012) documented 123 instances of support for seventy-eight different MMFs between 2007 and 2011, including thirty-one cases in which support was large enough that it probably was needed to prevent funds from breaking the buck. Still, these data only allow estimates of what MMF losses must have been to motivate sponsors' actions. In contrast, the data we describe are market-based values of MMF portfolios reported confidentially by the funds themselves during the crisis to the Department of the Treasury ("Treasury") and the Securities and Exchange Commission (SEC). In general, these "shadow" net asset values (NAVs) are invisible to investors and the public, as MMFs are permitted to round their reported share values to $1 so long as the shadow NAV remains above $0.995. Only if the shadow NAV drops below that threshold does the fund break the buck -- unless it receives sponsor support. During the crisis, many MMFs did receive such support, so their shadow NAVs remained invisible. However, any MMF with a shadow NAV below $0.9975 that participated in Treasury's Temporary Guarantee Program for MMFs was required to report to Treasury and the SEC what its shadow NAV would have been without some forms of sponsor support, such as capital support agreements."
