So what if there was an app that could manage the financial movements of all the services we would like to use, from Netflix and Spotify subscriptions to other payments related to transport and travel, all in one place? This is the proposal of the team that won the 2021 BBVA Hackathon, an event organised by BBVA Open Innovation where innovative ideas such as this were sought to revolutionise the financial services of tomorrow. The authoritative record of NPR’s programming is the audio record.With digitisation we have the world in the palm of our hands, as well as a huge number of mobile applications on our smartphones. This text may not be in its final form and may be updated or revised in the future. NPR transcripts are created on a rush deadline by an NPR contractor. Visit our website terms of use and permissions pages at for further information. And so far, money market funds haven't needed to resort to these measures. Certain funds were allowed to temporarily suspend withdrawals or charge investors a fee for taking their money out. WONG: Things have changed since Lehman collapsed and that one big money market fund broke the buck.
That report said that during periods of financial stress, there's a risk investors will withdraw their money en masse. MA: And that is why the Fed specifically mentioned money market funds in a recent report about financial stability. When that happens, they've gone from a run to a fire sale. They might have to sell their holdings at a deep discount. WONG: When money market funds have to cash out a lot of investors all at once, they can have trouble turning their assets into cash quickly enough. MA: People who were invested in these funds took their money and stampeded towards the exits. Following this event, investors, you know, likely concerned about losses, redeemed large amounts from their funds. WONG: So that Lehman Brothers debt basically just became worthless, right?ĪNADU: That's correct. There's a name for this called breaking the buck.ĪNADU: In September of 2008, a large fund broke the buck due to its holdings of Lehman Brothers debt.
MA: If that level falls below a dollar, it is a sign that something has gone really wrong. And conversely, if I sell my one share, I expect to receive $1. But unlike a stock price that bounces around, the price for a money market fund is basically $1 per share.ĪNADU: So that means that if I invest $1 into a fund, I can expect to receive one share in the fund. So if you want to invest in a money market fund, you do that by buying shares. WONG: And the stability of these funds is reflected in how they're priced. They're considered safe and boring, therefore making money market funds safe and boring. Treasurys, corporate bonds and municipal bonds.ĪDRIAN MA, BYLINE: These bonds are also short-term, meaning they typically come due in a matter of months instead of years, and they generally have low risk of default. So here is how money market funds are structured today. Fifty-plus years and several trillion dollars later, this industry has grown into a huge piece of financial infrastructure. WONG: These two guys came up with the first money market fund. WONG: So in the early '70s, there were two finance guys who were like, what if people could chip in and invest altogether in something that paid out more than what banks are offering?ĪNADU: And this included not just individual investors, but also small businesses that were looking for higher yield and cash options. KENECHUKWU ANADU: Back in the '70s, there was a Federal Reserve regulation that capped the interest rates that banks could pay. He says money market funds were created to give investors better returns than they could get on bank accounts. We spoke to him last week, and he wanted us to mention that he's not speaking on behalf of the Fed. WAILIN WONG, BYLINE: Kenechukwu Anadu studies financial stability at the Federal Reserve Bank of Boston. Wailin Wong and Adrian Ma from our daily economics podcast, The Indicator From Planet Money, explain. But after recent bank failures and debates over the debt ceiling, this huge part of the financial system could be on shaky ground. Money market funds are traditionally super safe investments and pay out a higher return than what you might get from a regular bank account.
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