Breaking the Buck and MMF Liquidity Fees

Money market funds are designed to hold their share price steady at exactly $1.00, backed by very short-term, high-quality debt. "Breaking the buck" means the fund's actual net asset value falls below $1.00 per share — investors get back less than a dollar for a dollar invested, which is exactly what a cash-like vehicle is supposed to never do. It has happened only rarely, most famously when the Reserve Primary Fund broke the buck in September 2008 after holding Lehman Brothers debt that lost most of its value overnight.

The danger of breaking the buck isn't just the loss itself — it's that investors, fearing further losses, all try to redeem at once, forcing the fund to sell assets into a falling market to raise cash, which can push the value down further and spread stress to other funds holding similar assets. This dynamic is a classic run on a cash-like vehicle, and it's why regulators respond with structural rules rather than just monitoring.

Post-2008 reforms let a fund whose weekly liquid assets fall below a threshold impose a liquidity fee on redemptions (making it costlier to run for the exit) or a temporary redemption gate (blocking withdrawals outright) to buy time and share losses fairly across remaining and departing investors rather than rewarding whoever redeems first.