Treasury estimates that the program will cover about $2 trillion in money market assets. Money market funds invested strictly in government securities won't need the insurance, Treasury spokeswoman Jennifer Zuccarelli said. Plus, funds that invest in municipal bonds might lose their tax-free status if they joined the insurance program, so they are not expected to participate, she said.
Zuccarelli said it was not decided yet whether Reserve Primary would be part of the insurance program and its investors made whole.
Already, there's lots of interest, Zuccarelli said.
Baltimore-based Legg Mason, which announced yesterday that it was providing another $630 million to shore up three of its money market funds against potential investor losses, says it intends to sign up for the insurance.
"We are going to participate. We don't anticipate needing to use it at this point," Legg spokeswoman Mary Athridge said.
Since last year, Legg has made capital contributions and acquired lines of credit totaling $2.7 billion for five money market funds that have been hurt by losses on debt tied to soured mortgages.
Altogether, Legg money market funds have $187.5 billion in assets.
Athridge said that clients a couple of days ago were moving their money from funds that don't invest in debt backed by the government to others that stick to Treasury securities. Once Legg notified clients that it was going to enroll in the federal insurance program, customers started moving money out of Treasury money market funds to other money market funds for the higher yield.
Baltimore's T. Rowe Price Associates hasn't decided whether to join the insurance program. "We want to see what the details are next week," including the cost and any investment restrictions, spokesman Steve Norwitz said.
Two Price funds owned small positions in Lehman Brothers' money market securities, but those were sold after Lehman filed for bankruptcy protection early this week. Price said all of its money market funds are "highly liquid and very well diversified" and are not in danger of dropping below $1 a share.
Financial advisers say clients are worried.
"Everybody is very concerned. And it doesn't matter what money market fund they are in," said Benjamin Tobias, a financial planner in Plantation, Fla. "I have never seen anything like it before." Many people are asking to be switched to federally insured certificates of deposit or money market funds investing only in government securities, he said.
