Fidelity, Vanguard Said to Plan Emergency Bank for Money Market

By Christopher Condon

Sept. 19 (Bloomberg) -- Fidelity Investments and Vanguard Group Inc. are among firms planning to set up an emergency pool of cash aimed at preventing a repeat of the run on money-market funds a year ago, said two people familiar with the plan.

Funds would pay a fee to an entity called the Liquidity Exchange Bank, building a cash reserve that would help them handle investor withdrawals during a crisis like the one last September, said the people, who asked not to be named because the information wasn’t public. The bank, which would buy securities at face value from the funds, could also apply for emergency support from the Federal Reserve discount window.

Asset managers are preparing the plan as the Obama administration considers forcing funds to abandon their stable price of $1 a share, a change the firms believe could undermine the attractiveness of money market funds, which currently hold $3.45 trillion. A Treasury Department program insuring money funds against losses from defaulted securities expired yesterday.

“This makes sense to the extent that the industry could take the wind out of the sails of alternative solutions that are not as appealing,â€