Money fund groups call for global liquidity fix

By Cecilia Valente

LONDON (Reuters) - The financial crisis requires a global solution for money market funds, including a liquidity pool for struggling funds, the chairman of the UK money market fund association told Reuters.

The U.S. Federal Reserve agency set up last month to provide liquidity to its domestic money market could serve as an example to Europe and elsewhere to tackle the crisis, Donald Aiken, chairman of the International Money Market Funds Association (IMMFA), said in an interview.

"It would be an interesting concept. Maybe it is something for the future we could look at," said Aiken who is also managing director at Morgan Stanley (MS.N) Investment Management.

"It is fair to say that the global markets now require a global liquidity solution," he said."

The Fed last month set up the Money Market Investor Funding Facility (MMIFF) to boost liquidity in the domestic money market fund industry through five special-purposes vehicles that can purchase instruments from money market funds.

The five vehicles can buy up to $600 billion (384 billion pounds) in assets, including dollar-denominated certificates of deposits.

Money market funds are viewed as a low-risk investment, paying slightly higher interest rates than bank savings accounts. Many money market mutual funds buy commercial paper, short-term debt companies use to fund day-to-day operations.

The U.S. intervention was prompted by one of the country's biggest money funds, Reserve Primary Fund, "breaking the buck" -- which meant that investors were facing losses on their principal.