A Money View of the FCIC Report: Part Two 2-2-11

The video discusses the shadow banking system's funding of mortgage-backed securities through repurchase agreements (RP) held by money market mutual funds. As concerns about collateral values arose, sponsors intervened to stabilize the system by issuing commercial paper. When sponsors could no longer support the system, the Federal Reserve stepped in, initially lending through the primary dealer credit facility and eventually holding mortgage-backed securities on its balance sheet, issuing excess reserves to stabilize the international monetary system.

What role does the sponsor play in the relationship between the money market mutual fund and the shadow banking system?

What happened to the money market mutual fund's confidence in its assets when the sponsor could no longer provide backing?

How did the Federal Reserve initially support the sponsor of the money market mutual fund?

Describe the process by which the Federal Reserve ultimately held mortgage-backed securities.

What are excess reserves, and how do they relate to the international system?