Herd immunity

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Herd_immunity

The top box shows an outbreak in a community in which a few people are infected (shown in red) and the rest are healthy but unimmunized (shown in blue); the illness spreads freely through the population. The middle box shows a population where a small number have been immunized (shown in yellow); those not immunized become infected while those immunized do not. In the bottom box, a large proportion of the population have been immunized; this prevents the illness from spreading significantly, including to unimmunized people. In the first two examples, most healthy unimmunized people become infected, whereas in the bottom example only one fourth of the healthy unimmunized people become infected.

Herd immunity (also called herd effect, community immunity, population immunity, or mass immunity) is a form of indirect protection that applies only to contagious diseases. It occurs when a sufficient percentage of a population has become immune to an infection, whether through previous infections or vaccination, thereby reducing the likelihood of infection for individuals who lack immunity.

Once the herd immunity has been reached, disease gradually disappears from a population and may result in eradication or permanent reduction of infections to zero if achieved worldwide. Herd immunity created via vaccination has contributed to the reduction of many diseases.

Effects

Protection of those without immunity

Some individuals either cannot develop immunity after vaccination or for medical reasons cannot be vaccinated. Newborn infants are too young to receive many vaccines, either for safety reasons or because passive immunity renders the vaccine ineffective. Individuals who are immunodeficient due to HIV/AIDS, lymphoma, leukemia, bone marrow cancer, an impaired spleen, chemotherapy, or radiotherapy may have lost any immunity that they previously had and vaccines may not be of any use for them because of their immunodeficiency.

A portion of those vaccinated may not develop long-term immunity. Vaccine contraindications may prevent certain individuals from being vaccinated. In addition to not being immune, individuals in one of these groups may be at a greater risk of developing complications from infection because of their medical status, but they may still be protected if a large enough percentage of the population is immune.

High levels of immunity in one age group can create herd immunity for other age groups. Vaccinating adults against pertussis reduces pertussis incidence in infants too young to be vaccinated, who are at the greatest risk of complications from the disease. This is especially important for close family members, who account for most of the transmissions to young infants. In the same manner, children receiving vaccines against pneumococcus reduces pneumococcal disease incidence among younger, unvaccinated siblings. Vaccinating children against pneumococcus and rotavirus has had the effect of reducing pneumococcus- and rotavirus-attributable hospitalizations for older children and adults, who do not normally receive these vaccines. Influenza (flu) is more severe in the elderly than in younger age groups, but influenza vaccines lack effectiveness in this demographic due to a waning of the immune system with age. The prioritization of school-age children for seasonal flu immunization, which is more effective than vaccinating the elderly, however, has been shown to create a certain degree of protection for the elderly.

For sexually transmitted infections (STIs), high levels of immunity in heterosexuals of one sex induces herd immunity for heterosexuals of both sexes. Vaccines against STIs that are targeted at heterosexuals of one sex result in significant declines in STIs in heterosexuals of both sexes if vaccine uptake in the target sex is high. Herd immunity from female vaccination does not, however, extend to males who have sex with males. High-risk behaviors make eliminating STIs difficult because, even though most infections occur among individuals with moderate risk, the majority of transmissions occur because of individuals who engage in high-risk behaviors. For this reason, in certain populations it may be necessary to immunize high-risk individuals regardless of sex.

Evolutionary pressure and serotype replacement

Herd immunity itself acts as an evolutionary pressure on pathogens, influencing viral evolution by encouraging the production of novel strains, referred to as escape mutants, that are able to evade herd immunity and infect previously immune individuals. The evolution of new strains is known as serotype replacement, or serotype shifting, as the prevalence of a specific serotype declines due to high levels of immunity, allowing other serotypes to replace it.

At the molecular level, viruses escape from herd immunity through antigenic drift, which is when mutations accumulate in the portion of the viral genome that encodes for the virus's surface antigen, typically a protein of the virus capsid, producing a change in the viral epitope. Alternatively, the reassortment of separate viral genome segments, or antigenic shift, which is more common when there are more strains in circulation, can also produce new serotypes. When either of these occur, memory T cells no longer recognize the virus, so people are not immune to the dominant circulating strain. For both influenza and norovirus, epidemics temporarily induce herd immunity until a new dominant strain emerges, causing successive waves of epidemics. As this evolution poses a challenge to herd immunity, broadly neutralizing antibodies and "universal" vaccines that can provide protection beyond a specific serotype are in development.

Initial vaccines against Streptococcus pneumoniae significantly reduced nasopharyngeal carriage of vaccine serotypes (VTs), including antibiotic-resistant types, only to be entirely offset by increased carriage of non-vaccine serotypes (NVTs). This did not result in a proportionate increase in disease incidence though, since NVTs were less invasive than VTs. Since then, pneumococcal vaccines that provide protection from the emerging serotypes have been introduced and have successfully countered their emergence. The possibility of future shifting remains, so further strategies to deal with this include expansion of VT coverage and the development of vaccines that use either killed whole-cells, which have more surface antigens, or proteins present in multiple serotypes.

Eradication of diseases

A cow with rinderpest in the "milk fever" position, 1982. The last confirmed case of rinderpest occurred in Kenya in 2001, and the disease was officially declared eradicated in 2011.

If herd immunity has been established and maintained in a population for a sufficient time, the disease is inevitably eliminated – no more endemic transmissions occur. If elimination is achieved worldwide and the number of cases is permanently reduced to zero, then a disease can be declared eradicated. Eradication can thus be considered the final effect or end-result of public health initiatives to control the spread of contagious disease. In cases in which herd immunity is compromised, on the contrary, disease outbreaks among the unvaccinated population are likely to occur.

The benefits of eradication include ending all morbidity and mortality caused by the disease, financial savings for individuals, health care providers, and governments, and enabling resources used to control the disease to be used elsewhere. To date, two diseases have been eradicated using herd immunity and vaccination: rinderpest and smallpox. Eradication efforts that rely on herd immunity are currently underway for poliomyelitis, though civil unrest and distrust of modern medicine have made this difficult. Mandatory vaccination may be beneficial to eradication efforts if not enough people choose to get vaccinated.

Free riding

Herd immunity is vulnerable to the free rider problem. Individuals who lack immunity, including those who choose not to vaccinate, free ride off the herd immunity created by those who are immune. As the number of free riders in a population increases, outbreaks of preventable diseases become more common and more severe due to loss of herd immunity. Individuals may choose to free ride or be hesitant to vaccinate for a variety of reasons, including the belief that vaccines are ineffective, or that the risks associated with vaccines are greater than those associated with infection, mistrust of vaccines or public health officials, bandwagoning or groupthinking, social norms or peer pressure, and religious beliefs. Certain individuals are more likely to choose not to receive vaccines if vaccination rates are high enough to convince a person that he or she may not need to be vaccinated, since a sufficient percentage of others are already immune.

Mechanism

Individuals who are immune to a disease act as a barrier in the spread of disease, slowing or preventing the transmission of disease to others. An individual's immunity can be acquired via a natural infection or through artificial means, such as vaccination. When a critical proportion of the population becomes immune, called the herd immunity threshold (HIT) or herd immunity level (HIL), the disease may no longer persist in the population, ceasing to be endemic.

The theoretical basis for herd immunity generally assumes that vaccines induce solid immunity, that populations mix at random, that the pathogen does not evolve to evade the immune response, and that there is no non-human vector for the disease.

Theoretical basis

See also: Basic reproduction number

Further information: Mathematical modelling of infectious diseases

Graph of herd immunity threshold vs basic reproduction number with selected diseases

The critical value, or threshold, in a given population, is the point where the disease reaches an endemic steady state, which means that the infection level is neither growing nor declining exponentially. This threshold can be calculated from the effective reproduction number R_e, which is obtained by taking the product of the basic reproduction number R₀, the average number of new infections caused by each case in an entirely susceptible population that is homogeneous, or well-mixed, meaning each individual is equally likely to come into contact with any other susceptible individual in the population, and S, the proportion of the population who are susceptible to infection, and setting this product to be equal to 1:

${\displaystyle R_0\cdot S=1.}$

S can be rewritten as (1 − p), where p is the proportion of the population that is immune so that p + S equals one. Then, the equation can be rearranged to place p by itself as follows:

${\displaystyle R_0\cdot (1-p)=1,}$

${\displaystyle 1-p=\frac{1}{R_0},}$

${\displaystyle p_c=1-\frac{1}{R_0}.}$

With p being by itself on the left side of the equation, it can be renamed as p_c, representing the critical proportion of the population needed to be immune to stop the transmission of disease, which is the same as the "herd immunity threshold" HIT. R₀ functions as a measure of contagiousness, so low R₀ values are associated with lower HITs, whereas higher R₀s result in higher HITs. For example, the HIT for a disease with an R₀ of 2 is theoretically only 50%, whereas a disease with an R₀ of 10 the theoretical HIT is 90%.

When the effective reproduction number R_e of a contagious disease is reduced to and sustained below 1 new individual per infection, the number of cases occurring in the population gradually decreases until the disease has been eliminated. If a population is immune to a disease in excess of that disease's HIT, the number of cases reduces at a faster rate, outbreaks are even less likely to happen, and outbreaks that occur are smaller than they would be otherwise. If the effective reproduction number increases to above 1, then the disease is neither in a steady state nor decreasing in incidence, but is actively spreading through the population and infecting a larger number of people than usual.

An assumption in these calculations is that populations are homogeneous, or well-mixed, meaning that every individual is equally likely to come into contact with any other individual, when in reality populations are better described as social networks as individuals tend to cluster together, remaining in relatively close contact with a limited number of other individuals. In these networks, transmission only occurs between those who are geographically or physically close to one another. The shape and size of a network is likely to alter a disease's HIT, making incidence either more or less common.Mathematical models can use contact matrices to estimate the likelihood of encounters and thus transmission.

Values of R₀ and herd immunity thresholds (HITs) of contagious diseases prior to intervention

Disease	Transmission	R0	HIT
Measles	Aerosol	12–18	92–94%
Chickenpox (varicella)	Aerosol	10–12	90–92%
Mumps	Respiratory droplets	10–12	90–92%
COVID-19 (see values for specific strains below)	Respiratory droplets and aerosol	2.9-9.5	65–89%
Rubella	Respiratory droplets	6–7	83–86%
Polio	Fecal–oral route	5–7	80–86%
Pertussis	Respiratory droplets	5.5	82%
Smallpox	Respiratory droplets	3.5–6.0	71–83%
HIV/AIDS	Body fluids	2–5	50–80%
SARS	Respiratory droplets	2–4	50–75%
Diphtheria	Saliva	2.6 (1.7–4.3)	62% (41–77%)
Common cold (e.g., rhinovirus)	Respiratory droplets	2–3	50–67%
Mpox	Physical contact, body fluids, respiratory droplets, sexual (MSM)	2.1 (1.1–2.7)	53% (22–63%)
Ebola (2014 outbreak)	Body fluids	1.8 (1.4–1.8)	44% (31–44%)
Influenza (seasonal strains)	Respiratory droplets	1.3 (1.2–1.4)	23% (17–29%)
Andes hantavirus	Respiratory droplets and body fluids	1.2 (0.8–1.6)	16% (0–36%)
Nipah virus	Body fluids	0.5	0%
MERS	Respiratory droplets	0.5 (0.3–0.8)	0%

In heterogeneous populations, R₀ is considered to be a measure of the number of cases generated by a "typical" contagious person, which depends on how individuals within a network interact with each other. Interactions within networks are more common than between networks, in which case the most highly connected networks transmit disease more easily, resulting in a higher R₀ and a higher HIT than would be required in a less connected network. In networks that either opt not to become immune or are not immunized sufficiently, diseases may persist despite not existing in better-immunized networks.

Overshoot

The cumulative proportion of individuals who get infected during the course of a disease outbreak can exceed the HIT. This is because the HIT does not represent the point at which the disease stops spreading, but rather the point at which each infected person infects fewer than one additional person on average. When the HIT is reached, the number of additional infections does not immediately drop to zero. The excess of the cumulative proportion of infected individuals over the theoretical HIT is known as the overshoot.

Boosts

Further information: Artificial induction of immunity

Vaccination

Main articles: Vaccination and Vaccine

See also: Vaccine-preventable disease and List of human disease case fatality rates

The primary way to boost levels of immunity in a population is through vaccination. Vaccination is originally based on the observation that milkmaids exposed to cowpox were immune to smallpox, so the practice of inoculating people with the cowpox virus began as a way to prevent smallpox. Well-developed vaccines provide protection in a far safer way than natural infections, as vaccines generally do not cause the diseases they protect against and severe adverse effects are significantly less common than complications from natural infections.

The immune system does not distinguish between natural infections and vaccines, forming an active response to both, so immunity induced via vaccination is similar to what would have occurred from contracting and recovering from the disease. To achieve herd immunity through vaccination, vaccine manufacturers aim to produce vaccines with low failure rates, and policy makers aim to encourage their use. After the successful introduction and widespread use of a vaccine, sharp declines in the incidence of diseases it protects against can be observed, which decreases the number of hospitalizations and deaths caused by such diseases.

Assuming a vaccine is 100% effective, then the equation used for calculating the herd immunity threshold can be used for calculating the vaccination level needed to eliminate a disease, written as V_c. Vaccines are usually imperfect however, so the effectiveness, E, of a vaccine must be accounted for:

${\displaystyle V_c=\frac{1-\frac{1}{R_0}}{E}.}$

From this equation, it can be observed that if E is less than (1 − 1/R₀), then it is impossible to eliminate a disease, even if the entire population is vaccinated. Similarly, waning vaccine-induced immunity, as occurs with acellular pertussis vaccines, requires higher levels of booster vaccination to sustain herd immunity. If a disease has ceased to be endemic to a population, then natural infections no longer contribute to a reduction in the fraction of the population that is susceptible. Only vaccination contributes to this reduction. The relation between vaccine coverage and effectiveness and disease incidence can be shown by subtracting the product of the effectiveness of a vaccine and the proportion of the population that is vaccinated, p_v, from the herd immunity threshold equation as follows:

Measles vaccine coverage and reported measles cases in Eastern Mediterranean countries. As coverage increased, the number of cases decreased.

${\displaystyle \left(1-\frac{1}{R_0}\right)-(E\times p_v).}$

It can be observed from this equation that, all other things being equal ("ceteris paribus"), any increase in either vaccine coverage or vaccine effectiveness, including any increase in excess of a disease's HIT, further reduces the number of cases of a disease. The rate of decline in cases depends on a disease's R₀, with diseases with lower R₀ values experiencing sharper declines.

Vaccines usually have at least one contraindication for a specific population for medical reasons, but if both effectiveness and coverage are high enough then herd immunity can protect these individuals. Vaccine effectiveness is often, but not always, adversely affected by passive immunity, so additional doses are recommended for some vaccines while others are not administered until after an individual has lost his or her passive immunity.

Passive immunity

Main article: Passive immunity

Individual immunity can also be gained passively, when antibodies to a pathogen are transferred from one individual to another. This can occur naturally, whereby maternal antibodies, primarily immunoglobulin G antibodies, are transferred across the placenta and in colostrum to fetuses and newborns. Passive immunity can also be gained artificially, when a susceptible person is injected with antibodies from the serum or plasma of an immune person.

Protection generated from passive immunity is immediate, but wanes over the course of weeks to months, so any contribution to herd immunity is temporary. For diseases that are especially severe among fetuses and newborns, such as influenza and tetanus, pregnant women may be immunized in order to transfer antibodies to the child. In the same way, high-risk groups that are either more likely to experience infection, or are more likely to develop complications from infection, may receive antibody preparations to prevent these infections or to reduce the severity of symptoms.

Cost–benefit analysis

Herd immunity is often accounted for when conducting cost–benefit analyses of vaccination programs. It is regarded as a positive externality of high levels of immunity, producing an additional benefit of disease reduction that would not occur had no herd immunity been generated in the population. Therefore, herd immunity's inclusion in cost–benefit analyses results both in more favorable cost-effectiveness or cost–benefit ratios, and an increase in the number of disease cases averted by vaccination. Study designs done to estimate herd immunity's benefit include recording disease incidence in households with a vaccinated member, randomizing a population in a single geographic area to be vaccinated or not, and observing the incidence of disease before and after beginning a vaccination program. From these, it can be observed that disease incidence may decrease to a level beyond what can be predicted from direct protection alone, indicating that herd immunity contributed to the reduction. When serotype replacement is accounted for, it reduces the predicted benefits of vaccination.

History

Measles cases in the United States before and after mass vaccination against measles began.

Herd immunity was recognized as a naturally occurring phenomenon in the 1930s when it was observed that after a significant number of children had become immune to measles, the number of new infections temporarily decreased. Mass vaccination to induce herd immunity has since become common and proved successful in preventing the spread of many contagious diseases. Opposition to vaccination has posed a challenge to herd immunity, allowing preventable diseases to persist in or return to populations with inadequate vaccination rates.

The exact herd immunity threshold (HIT) varies depending on the basic reproduction number of the disease. An example of a disease with a high threshold was the measles, with a HIT exceeding 95%.

The term "herd immunity" was first used in 1894 by American veterinary scientist and then Chief of the Bureau of Animal Industry of the US Department of Agriculture Daniel Elmer Salmon to describe the healthy vitality and resistance to disease of well-fed herds of hogs. In 1916 veterinary scientists inside the same Bureau of Animal Industry used the term to refer to the immunity arising following recovery in cattle infected with brucellosis, also known as "contagious abortion." By 1923 it was being used by British bacteriologists to describe experimental epidemics with mice, experiments undertaken as part of efforts to model human epidemic disease. By the end of the 1920s the concept was used extensively - particularly among British scientists - to describe the build up of immunity in populations to diseases such as diphtheria, scarlet fever, and influenza. Herd immunity was recognized as a naturally occurring phenomenon in the 1930s when A. W. Hedrich published research on the epidemiology of measles in Baltimore, and took notice that after many children had become immune to measles, the number of new infections temporarily decreased, including among susceptible children. In spite of this knowledge, efforts to control and eliminate measles were unsuccessful until mass vaccination using the measles vaccine began in the 1960s. Mass vaccination, discussions of disease eradication, and cost–benefit analyses of vaccination subsequently prompted more widespread use of the term herd immunity. In the 1970s, the theorem used to calculate a disease's herd immunity threshold was developed. During the smallpox eradication campaign in the 1960s and 1970s, the practice of ring vaccination, to which herd immunity is integral, began as a way to immunize every person in a "ring" around an infected individual to prevent outbreaks from spreading.

Since the adoption of mass and ring vaccination, complexities and challenges to herd immunity have arisen. Modeling of the spread of contagious disease originally made a number of assumptions, namely that entire populations are susceptible and well-mixed, which is not the case in reality, so more precise equations have been developed. In recent decades, it has been recognized that the dominant strain of a microorganism in circulation may change due to herd immunity, either because of herd immunity acting as an evolutionary pressure or because herd immunity against one strain allowed another already-existing strain to spread. Emerging or ongoing fears and controversies about vaccination have reduced or eliminated herd immunity in certain communities, allowing preventable diseases to persist in or return to these communities.

money market fund

From Wikipedia, the free encyclopedia

A money market fund (also called a money market mutual fund) is an open-end mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are managed with the goal of maintaining a highly stable asset value through liquid investments, while paying income to investors in the form of dividends. Although they are not insured against loss, actual losses have been quite rare in practice.

Regulated in the United States under the Investment Company Act of 1940, and in Europe under Regulation 2017/1131, money market funds are important providers of liquidity to financial intermediaries.

Explanation

Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds in the United States are regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. Rule 2a-7 of the act restricts the quality, maturity and diversity of investments by money market funds. Under this act, a money fund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 60 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.

Securities in which money markets may invest include commercial paper, repurchase agreements, short-term bonds and other money funds. Money market securities must be highly liquid and of the highest quality.

History

In 1971, Bruce R. Bent and Henry B. R. Brown established the first money market fund. It was named the Reserve Fund and was offered to investors who were interested in preserving their cash and earning a small rate of return. Several more funds were shortly set up and the market grew significantly over the next few years. Money market funds are credited with popularizing mutual funds in general, which until that time, were not widely utilized.

Money market funds in the United States created a solution to the limitations of Regulation Q, which at the time prohibited demand deposit accounts from paying interest and capped the rate of interest on other types of bank accounts at 5.25%. Thus, money market funds were created as a substitute for bank accounts.

In the 1990s, bank interest rates in Japan were near zero for an extended period of time. To search for higher yields from these low rates in bank deposits, investors used money market funds for short-term deposits instead. However, several money market funds fell off short of their stable value in 2001 due to the bankruptcy of Enron, in which several Japanese funds had invested, and investors fled into government-insured bank accounts. Since then the total value of money markets have remained low.

Money market funds in Europe have always had much lower levels of investments capital than in the United States or Japan. Regulations in the EU have always encouraged investors to use banks rather than money market funds for short-term deposits.

Breaking the buck

Money market funds seek a stable net asset value (NAV) per share (which is generally $1.00 in the United States). They aim to never lose money. The $1.00 is maintained through the declaration of dividends to shareholders, typically daily, at an amount equal to the fund's net income. If a fund's NAV drops below $1.00, it is said that the fund "broke the buck". For SEC registered money funds, maintaining the $1.00 flat NAV is usually accomplished under a provision under Rule 2a-7 of the 40 Act that allows a fund to value its investments at amortized cost rather than market value, provided that certain conditions are maintained. One such condition involves a side-test calculation of the NAV that uses the market value of the fund's investments. The fund's published, amortized value may not exceed this market value by more than 1/2 cent per share, a comparison that is generally made weekly. If the variance does exceed $0.005 per share, the fund could be considered to have broken the buck, and regulators may force it into liquidation.

Buck breaking has rarely happened. Up to the 2008 financial crisis, only three money funds had broken the buck in the 37-year history of money funds.

It is important to note that, while money market funds are typically managed in a fairly safe manner, there would have been many more failures over this period if the companies offering the money market funds had not stepped in when necessary to support their fund (by way of infusing capital to reimburse security losses) and avoid having the funds break the buck. This was done because the expected cost to the business from allowing the fund value to drop—in lost customers and reputation—was greater than the amount needed to bail it out.

The first money market mutual fund to break the buck was First Multifund for Daily Income (FMDI) in 1978, liquidating and restating NAV at 94 cents per share. An argument has been made that FMDI was not technically a money market fund as at the time of liquidation the average maturity of securities in its portfolio exceeded two years. However, prospective investors were informed that FMDI would invest "solely in Short-Term (30-90 days) MONEY MARKET obligations". Furthermore, the rule restricting the maturities which money market funds are permitted to invest in, Rule 2a-7 of the Investment Company Act of 1940, was not promulgated until 1983. Prior to the adoption of this rule, a mutual fund had to do little other than present itself as a money market fund, which FMDI did. Seeking higher yield, FMDI had purchased increasingly longer maturity securities, and rising interest rates negatively impacted the value of its portfolio. In order to meet increasing redemptions, the fund was forced to sell a certificate of deposit at a 3% loss, triggering a restatement of its NAV and the first instance of a money market fund "breaking the buck".

The Community Bankers US Government Fund broke the buck in 1994, paying investors 96 cents per share. This was only the second failure in the then 23-year history of money funds and there were no further failures for 14 years. The fund had invested a large percentage of its assets into adjustable rate securities. As interest rates increased, these floating rate securities lost value. This fund was an institutional money fund, not a retail money fund, thus individuals were not directly affected.

No further failures occurred until September 2008, a month that saw tumultuous events for money funds. However, as noted above, other failures were only averted by infusions of capital from the fund sponsors.

September 2008

See also: 2007–2008 financial crisis

Money market funds increasingly became important to the wholesale money market leading up to the crisis. Their purchases of asset-backed securities and large-scale funding of foreign banks' short-term US-denominated debt put the funds in a pivotal position in the marketplace.

The week of September 15, 2008, to September 19, 2008, was very turbulent for money funds and a key part of financial markets seizing up.

Events

On Monday, September 15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy. On Tuesday, September 16, 2008, The Reserve Primary Fund broke the buck when its shares fell to 97 cents after writing off debt issued by Lehman Brothers.

Continuing investor anxiety as a result of the Lehman Brothers bankruptcy and other pending financial troubles caused significant redemptions from money funds in general, as investors redeemed their holdings and funds were forced to liquidate assets or impose limits on redemptions. Through Wednesday, September 17, 2008, prime institutional funds saw substantial redemptions. Retail funds saw net inflows of $4 billion, for a net capital outflow from all funds of $169 billion to $3.4 trillion (5%).

In response, on Friday, September 19, 2008, the US Department of the Treasury announced an optional program to "insure the holdings of any publicly offered eligible money market mutual fund—both retail and institutional—that pays a fee to participate in the program". The insurance guaranteed that if a covered fund had broken the buck, it would have been restored to $1 NAV. The program was similar to the FDIC, in that it insured deposit-like holdings and sought to prevent runs on the bank. The guarantee was backed by assets of the Treasury Department's Exchange Stabilization Fund, up to a maximum of $50 billion. This program only covered assets invested in funds before September 19, 2008, and those who sold equities, for example, during the subsequent market crash and parked their assets in money funds, were at risk. The program immediately stabilized the system and stanched the outflows, but drew criticism from banking organizations, including the Independent Community Bankers of America and American Bankers Association, who expected funds to drain out of bank deposits and into newly insured money funds, as these latter would combine higher yields with insurance. The guarantee program ended on September 18, 2009, with no losses and generated $1.2 billion (~$1.66 billion in 2023) in revenue from the participation fees.

Analysis

The crisis, which eventually became the catalyst for the Emergency Economic Stabilization Act of 2008, almost developed into a run on money funds: the redemptions caused a drop in demand for commercial paper, preventing companies from rolling over their short-term debt, potentially causing an acute liquidity crisis: if companies cannot issue new debt to repay maturing debt, and do not have cash on hand to pay it back, they will default on their obligations, and may have to file for bankruptcy. Thus there was concern that the run could cause extensive bankruptcies, a debt deflation spiral, and serious damage to the real economy, as in the Great Depression.

The drop in demand resulted in a "buyers strike", as money funds could not (because of redemptions) or would not (because of fear of redemptions) buy commercial paper, driving yields up dramatically: from around 2% the previous week to 8%, and funds put their money in Treasuries, driving their yields close to 0%.

This is a bank run in the sense that there is a mismatch in maturities, and thus a money fund is a "virtual bank": the assets of money funds, while short term, nonetheless typically have maturities of several months, while investors can request redemption at any time, without waiting for obligations to come due. Thus if there is a sudden demand for redemptions, the assets may be liquidated in a fire sale, depressing their sale price.

An earlier crisis occurred in 2007–2008, where the demand for asset-backed commercial paper dropped, causing the collapse of some structured investment vehicles. As a result of the events, the Reserve Fund liquidated, paying shareholders 99.1 cents per share.

Statistics

The Investment Company Institute reports statistics on money funds weekly as part of its mutual fund statistics, as part of its industry statistics, including total assets and net flows, both for institutional and retail funds. It also provides annual reports in the ICI Fact Book.

At the end of 2011, there were 632 money market funds in operation, with total assets of nearly US$2.7 trillion. Of this $2.7 trillion, retail money market funds had $940 billion in Assets Under Management (AUM). Institutional funds had $1.75 trillion under management.

Types and size of money funds

In the United States, the fund industry and its largest trade organization, the Investment Company Institute, generally categorize money funds into the type of investment strategy: Prime, Treasury or Tax-exempt as well as distribution channel/investor: Institutional or Retail.

Prime money fund

A fund that invests generally in variable-rate debt and commercial paper of corporations and securities of the US government and agencies. Can be considered of any money fund that is not a Treasury or Tax-exempt fund.

Government and Treasury money funds

A Government money fund (as of the SEC's July 24, 2014 rule release) is one that invests at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are "collateralized fully" (i.e., collateralized by cash or government securities). A Treasury fund is a type of government money fund that invests in US Treasury Bills, Bonds and Notes.

Tax-exempt money fund

The fund invests primarily in obligations of state and local jurisdictions ("municipal securities") generally exempt from US Federal Income Tax (and to some extent state income taxes).

Institutional money fund

Institutional money funds are high minimum investment, low expense share classes that are marketed to corporations, governments, or fiduciaries. They are often set up so that money is swept to them overnight from a company's main operating accounts. Large national chains often have many accounts with banks all across the country, but electronically pull a majority of funds on deposit with them to a concentrated money market fund.

Retail money fund

Retail money funds are offered primarily to individuals. Retail money market funds hold roughly 33% of all money market fund assets.

Fund yields are typically somewhat higher than bank savings accounts, but of course these are different products with differing risks (e.g., money fund accounts are not insured and are not deposit accounts). Since Retail funds generally have higher servicing needs and thus expenses than Institutional funds, their yields are generally lower than Institutional funds.

SEC rule amendments released July 24, 2014, have 'improved' the definition of a Retail money fund to be one that has policies and procedures reasonably designed to limit its shareholders to natural persons.

Money fund sizes

Recent total net assets for the US Fund industry are as follows: total net assets $2.6 trillion: $1.4 trillion in Prime money funds, $907 billion in Treasury money funds, $257 billion in Tax-exempt. Total Institutional assets outweigh Retail by roughly 2:1.

The largest institutional money fund is the JPMorgan Prime Money Market Fund, with over US$100 billion in assets. Among the largest companies offering institutional money funds are BlackRock, Western Asset, Federated Investors, Bank of America, Dreyfus, AIM and Evergreen (Wachovia).

The largest money market mutual fund is Vanguard Federal Money Market Fund (Nasdaq:VMFXX), with assets exceeding US$120 billion. The largest retail money fund providers include: Fidelity, Vanguard, and Schwab.

Similar investments

Money market accounts

Main article: Money market account

Banks in the United States offer savings and money market deposit accounts, but these should not be confused with money mutual funds. These bank accounts offer higher yields than traditional passbook savings accounts, but often with higher minimum balance requirements and limited transactions. A money market account may refer to a money market mutual fund, a bank money market deposit account (MMDA) or a brokerage sweep free credit balance.

Ultrashort bond funds

Ultrashort bond funds are mutual funds, similar to money market funds, that, as the name implies, invest in bonds with extremely short maturities. Unlike money market funds, however, there are no restrictions on the quality of the investments they hold. Instead, ultrashort bond funds typically invest in riskier securities in order to increase their return. Since these high-risk securities can experience large swings in price or even default, ultrashort bond funds, unlike money market funds, do not seek to maintain a stable $1.00 NAV and may lose money or dip below the $1.00 mark in the short term. Finally, because they invest in lower quality securities, ultrashort bond funds are more susceptible to adverse market conditions such as those brought on by the financial crisis of 2007–2010.

Enhanced cash funds

Enhanced cash funds are bond funds similar to money market funds, in that they aim to provide liquidity and principal preservation, but which:

• Invest in a wider variety of assets, and do not meet the restrictions of SEC Rule 2a-7;
• Aim for higher returns;
• Have less liquidity;
• Do not aim as strongly for stable NAV.

Enhanced cash funds will typically invest some of their portfolio in the same assets as money market funds, but others in riskier, higher yielding, less liquid assets such as:

• Lower-rated bonds;
• Longer maturity;
• Foreign currency–denominated debt;
• Asset-backed commercial paper (ABCP);
• Mortgage-backed securities (MBSs);
• Structured investment vehicles (SIVs).

In general, the NAV will stay close to $1, but is expected to fluctuate above and below, and will break the buck more often. Different managers place different emphases on risk versus return in enhanced cash – some consider preservation of principal as paramount, and thus take few risks, while others see these as more bond-like, and an opportunity to increase yield without necessarily preserving principal. These are typically available only to institutional investors, not retail investors.

The purpose of enhanced cash funds is not to replace money markets, but to fit in the continuum between cash and bonds – to provide a higher yielding investment for more permanent cash. That is, within one's asset allocation, one has a continuum between cash and long-term investments:

• Cash – most liquid and least risky, but low yielding;
• Money markets / cash equivalents;
• Enhanced cash;
• Long-term bonds and other non-cash long-term investments – least liquid and most risky, but highest yielding.

Enhanced cash funds were developed due to low spreads in traditional cash equivalents.

There are also funds which are billed as "money market funds", but are not 2a-7 funds (do not meet the requirements of the rule). In addition to 2a-7 eligible securities, these funds invest in Eurodollars and repos (repurchase agreements), which are similarly liquid and stable to 2a-7 eligible securities, but are not allowed under the regulations.

Systemic risk and global regulatory reform

US regulatory reform

A deconstruction of the September 2008 events around money market funds, and the resulting fear, panic, contagion, classic bank run, emergency need for substantial external propping up, etc. revealed that the US regulatory system covering the basic extension of credit has had substantial flaws that in hindsight date back at least two decades.

It has long been understood that regulation around the extension of credit requires substantial levels of integrity throughout the system. To the extent regulation can help insure that base levels of integrity persist throughout the chain, from borrower to lender, and it curtails the overall extension of credit to reasonable levels, episodic financial crisis may be averted.

In the 1970s, money market funds began disintermediating banks from their classic interposition between savers and borrowers. The funds provided a more direct link, with less overhead. Large banks are regulated by the Federal Reserve Board and the Office of the Comptroller of the Currency. Notably, the Fed is itself owned by the large private banks, and controls the overall supply of money in the United States. The OCC is housed within the Treasury Department, which in turn manages the issuance and maintenance of the multi-trillion dollar debt of the US government. The overall debt is of course connected to ongoing federal government spending vs. actual ongoing tax receipts. Unquestionably, the private banking industry, bank regulation, the national debt, and ongoing governmental spending politics are substantially interconnected. Interest rates incurred on the national debt is subject to rate setting by the Fed, and inflation (all else being equal) allows today's fixed debt obligation to be paid off in ever cheaper to obtain dollars. The third major bank regulator, designed to swiftly remove failing banks is the Federal Deposit Insurance Corporation, a bailout fund and resolution authority that can eliminate banks that are failing, with minimum disruption to the banking industry itself. They also help ensure depositors continue to do business with banks after such failures by insuring their deposits.

From the outset, money market funds fell under the jurisdiction of the SEC as they appeared to be more like investments (most similar to traditional stocks and bonds) vs. deposits and loans (cash and cash equivalents the domain of the bankers). Although money market funds are quite close to and are often accounted for as cash equivalents their main regulator, the SEC, has zero mandate to control the supply of money, limit the overall extension of credit, mitigate against boom and bust cycles, etc. The SEC's focus remains on adequate disclosure of risk, and honesty and integrity in financial reporting and trading markets. After adequate disclosure, the SEC adopts a hands off, let the buyer beware attitude.

To many retail investors, money market funds are confusingly similar to traditional bank demand deposits. Virtually all large money market funds offer check writing, ACH transfers, wiring of funds, associated debit and credit cards, detailed monthly statements of all cash transactions, copies of canceled checks, etc. This makes it appear that cash is actually in the individual's account. With net asset values reported flat at $1.00, despite the market value variance of the actual underlying assets, an impression of rock solid stability is maintained. To help maintain this impression, money market fund managers frequently forgo being reimbursed legitimate fund expenses, or cut their management fee, on an ad hoc and informal basis, to maintain that solid appearance of stability.

To illustrate the various blending and blurring of functions between classic banking and investing activities at money market funds, a simplified example will help. Imagine only retail "depositors" on one end, and S&P 500 corporations borrowing through the commercial paper market on the other. The depositors assume:

• Extremely short duration (60 days or less)
• Extremely broad diversification (hundreds, if not thousands of positions)
• Very high grade investments.

After 10–20 years of stability the "depositors" here assume safety, and move all cash to money markets, enjoying the higher interest rates.

On the borrowing end, after 10–20 years, the S&P 500 corporations become extremely accustomed to obtaining funds via these money markets, which are very stable. Initially, perhaps they only borrowed in these markets for a highly seasonal cash needs, being a net borrower for only say 90 days per year. They would borrow here as they experienced their deepest cash needs over an operating cycle to temporarily finance short-term build ups in inventory and receivables. Or, they moved to this funding market from a former bank revolving line of credit, that was guaranteed to be available to them as they needed it, but had to be cleaned up to a zero balance for at least 60 days out of the year. In these situations the corporations had sufficient other equity and debt financing for all of their regular capital needs. They were however dependent on these sources to be available to them, as needed, on an immediate daily basis.

Over time, money market fund "depositors" felt more and more secure, and not really at risk. Likewise, on the other end, corporations saw the attractive interest rates and incredibly easy ability to constantly roll over short term commercial paper. Using rollovers they then funded longer and longer term obligations via the money markets. This expands credit. It's also over time clearly long-term borrowing on one end, funded by an on-demand depositor on the other, with some substantial obfuscation as to what is ultimately going on in between.

In the wake of the crisis two solutions have been proposed. One, repeatedly supported over the long term by the GAO and others is to consolidate the US financial industry regulators. A step along this line has been the creation of the Financial Stability Oversight Council to address systemic risk issues that have in the past, as amply illustrated by the money market fund crisis above, fallen neatly between the cracks of the standing isolated financial regulators. Proposals to merge the SEC and CFTC have also been made.

A second solution, more focused on money market funds directly, is to re-regulate them to address the common misunderstandings, and to ensure that money market "depositors", who enjoy greater interest rates, thoroughly understand the actual risk they are undertaking. These risks include substantial interconnectedness between and among money market participants, and various other substantial systemic risks factors.

One solution is to report to money market "depositors" the actual, floating net asset value. This disclosure has come under strong opposition by Fidelity Investments, The Vanguard Group, BlackRock, and the US Chamber of Commerce as well as others.

The SEC would normally be the regulator to address the risks to investors taken by money market funds, however to date the SEC has been internally politically gridlocked. The SEC is controlled by five commissioners, no more than three of which may be the same political party. They are also strongly enmeshed with the current mutual fund industry, and are largely divorced from traditional banking industry regulation. As such, the SEC is not concerned over overall credit extension, money supply, or bringing shadow banking under the regulatory umbrella of effective credit regulation.

As the SEC was gridlocked, the Financial Stability Oversight Council promulgated its own suggested money market reforms and threatens to move forward if the SEC doesn't button it up with an acceptable solution of their own on a timely basis. The SEC has argued vociferously that this is "their area" and FSOC should back off and let them handle it, a viewpoint shared by four former SEC chairmen, Roderick Hills, David Ruder, Richard Breeden, and Harvey Pitt, and two former commissioners, Roel Campos and Paul S. Atkins.

US Reform: SEC Rule Amendments released July 24, 2014

The Securities and Exchange Commission (SEC) issued final rules that are designed to address money funds’ susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, their benefits.

There are several key components:

Floating NAV required of institutional non-government money funds

The SEC is removing the valuation exemption that permitted these funds (whose investors historically have made the heaviest redemptions in times of stress) to maintain a stable NAV, i.e., they will have to transact sales and redemptions as a market value-based or "floating" NAV, rounded to the fourth decimal place (e.g., $1.0000).

Fees and gates

The SEC is giving money fund boards of directors the discretion whether to impose a liquidity fee if a fund's weekly liquidity level falls below the required regulatory threshold, and/or to suspend redemptions temporarily, i.e., to "gate" funds, under the same circumstances. These amendments will require all non-government money funds to impose a liquidity fee if the fund's weekly liquidity level falls below a designated threshold, unless the fund's board determines that imposing such a fee is not in the best interests of the fund.

Other provisions

In addition, the SEC is adopting amendments designed to make money market funds more resilient by increasing the diversification of their portfolios, enhancing their stress testing, and improving transparency by requiring money market funds to report additional information to the SEC and to investors. Additionally, stress testing will be required and a key focus will be placed on the funds ability to maintain weekly liquid assets of at least 10%. Finally, the amendments require investment advisers to certain large unregistered liquidity funds, which can have many of the same economic features as money market funds, to provide additional information about those funds to the SEC.

EU regulatory reform

In parallel with the US Reform, the EU completed drafting of a similar regulation for the money market fund product.

On June 30, 2017, Regulation (EU) 2017/1131 for money market funds was published in the Official Journal of the European Union, introducing new rules for MMFs domiciled, managed or marketed in the European Union. This entered into effect in March 2019. The regulation introduces four new categories of fund structures for MMFs:

• Public Debt Constant Net Asset Value (CNAV) MMFs are short-term MMFs. Funds must invest 99.5% in government assets. Units in the fund are purchased or redeemed at a constant price rounded to the nearest percentage point.
• Low Volatility Net Asset Value (LVNAV) MMFs are short-term MMFs. Funds around are purchased or redeemed at a constant price so long as the value of the underlying assets do not deviate by more than 0.2% (20bit/s) from par (i.e. 1.00).
• Short Term Variable NAV – Short-term Variable Net Asset Value (VNAV) MMFs are primarily invested in money market instruments, deposits and other MMFs. Funds are subject to looser liquidity rules than Public Debt CNAV and LVNAV funds. Units in the funds are purchased or redeemed at a variable price calculated to the equivalent of at least four significant figures (e.g. 10,000.00).
• Standard Variable NAV VNAV– Standard MMFs must be VNAV funds. Funds are primarily invested in money market instruments, deposits and other short-term assets. Funds are subject to looser liquidity rules than Public Debt CNAV and LVNAV funds AND may invest in assets of much longer maturity. Units in the funds are purchased or redeemed at a variable price calculated to the equivalent of at least four significant figures (e.g. 10,000.00).

Although the starting products were similar, there are now considerable differences between US and EU MMFs. Whilst EU MMF investors mostly moved to successor fund types, investors in US MMFs undertook a huge and persisting switch from Prime into Government MMF.

The EU MMF Regulation does not make any reference to either fund or portfolio external credit rating requirements. Throughout the transition EU MMFs overwhelmingly retained their existing ratings, and the credit rating agencies have confirmed their commitment to the MMF-specific rating criteria they each maintain.

A major difference in scope is that, on a like-for-like basis, US MMFs may be compared only to EU short-term MMFs.

American Buffalo (coin)

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/American_Buffalo_(coin)

United States
Value	(Proof), 4–5% above spot (Bullion) U.S. dollars
Mass	31.108 g (1.0001 troy oz)
Diameter	32.7 mm (1.287 in)
Thickness	2.95 mm (0.116 in)
Edge	Reeded
Composition	99.99% (24K) gold
Years of minting	2006–present
Catalog number	BA6
Obverse
Design	Iron Tail and Two Moons, American Indians
Designer	James Earle Fraser's design of the Indian Head nickel was modified for the American Buffalo coin
Design date	1913
Reverse
Design	American bison
Designer	James Earle Fraser's design of the Indian Head nickel was modified for the American Buffalo coin
Design date	1913

The American Buffalo, also known as a gold buffalo, is a 24-karat bullion coin first offered for sale by the United States Mint in 2006. The coin follows the design of the Indian Head nickel and has gained its nickname from the American Bison on the reverse side of the design. This was the first time the United States government minted pure (.9999) 24-karat gold coins for the public. The coin contains one-troy ounce (31.1g) of pure gold and has a legal tender (face) value of US$50. Due to a combination of the coin's popularity and the increase in the price of gold, the coin's value has increased considerably. The initial 2006 U.S. Mint price of the proof coin was $800. In 2007 the price was $899.95, $1,410 in 2009, and $2,010 in 2011.

In addition to requiring a presidential dollar coin series to begin in 2007 and redesigning the cent in 2009, the Presidential $1 Coin Act of 2005 mandated the production of a one-ounce 24-karat gold bullion coin with a face value of $50 and a mintage limit of up to 300,000 coins.

Design

The design of the American Buffalo gold bullion coin is a modified version of James Earle Fraser's design for the Indian Head nickel (Type 1), issued in early 1913. After a raised mound of dirt below the animal on the reverse was reduced, the Type 2 variation continued to be minted for the rest of 1913 and every year until 1938, except for 1922, 1932, and 1933 when no nickels were struck. Generally, Fraser's Indian Head nickel design is regarded as among the best designs of any U.S. coins. The same design also was used on the 2001 Smithsonian commemorative coin.

The obverse (front) of the coin depicts a Native American, whom Fraser said he created as a mixture of the features of three chiefs from different American Indian tribes, Big Tree, Iron Tail, and Two Moons, who posed as models for him to sketch. The obverse also shows the motto "LIBERTY" on the top right, the year of mintage on the bottom left, and below that the letter F for Fraser.

The American Buffalo gold bullion coin further has in common with the nickel the motto E PLURIBUS UNUM above the buffalo's lower back and the device UNITED·STATES·OF·AMERICA along the top. Differences that can be noted between the nickel and the fifty dollar piece are, on the gold American Buffalo coin the mound area of the reverse of the Indian Head nickel bearing the words, FIVE CENTS, has been changed to read $50 1 OZ. .9999 FINE GOLD. Also, the motto, IN GOD WE TRUST, appearing on all U.S. gold coins since 1908, can be seen on the reverse of the newer coin to the left of, and beneath, the buffalo's head.

Fractional sizes

The U.S. Mint indicated an expansion of the program, to include buffalo gold coins in fractional sizes for 2008 only. The specially-packaged 8–8-08 Double Prosperity set contained a one-half ounce gold buffalo coin.

 
Weights and measures provided below:

	Diameter	Thickness	Weight
$5 (1/10 oz.)	16.5 mm (0.650 in.)	1.19 mm (0.047 in.)	0.10 Troy oz. (3.11 g, 0.109 oz.)
$10 (1/4 oz.)	22.0 mm (0.866 in.)	1.83 mm (0.072 in.)	0.25 Troy oz. (7.776 g, 0.274 oz.)
$25 (1/2 oz.)	27.0 mm (1.063 in.)	2.24 mm (0.088 in.)	0.503 Troy oz. (15.552 g, 0.5485 oz.)

Distribution

Currently, all U.S. bullion coins, including the American Buffalo gold piece, are being struck at the West Point Mint in New York. According to the U.S. Mint website, only the proof version of the buffalo gold coin bears the mint mark "W" on the obverse (front) of the coin, behind the neck of the Indian; the bullion version does not have the "W" mint mark. The 2006 and 2007 coins only have been issued in a one-ounce version, but in 2008, $5, $10, and $25 face value coins were minted with 1/10 oz, 1/4 oz, and 1/2 oz of gold respectively.

After a long wait by both collectors and investors, the uncirculated version of the American Buffalo gold piece was made available to coin dealers on June 20, 2006. Collectors who wanted to purchase the proof version from the mint were given the opportunity to place their orders with the mint beginning on July 22. The 2006 proof quality coin has a strict mintage limit of 300,000, with an additional enforced limit of only ten (10) coins per household. The catalog number of the 2006 proof coin at the U.S. Mint is (BA6).

The coin was created in order to compete with foreign 24-karat gold bullion coins. Since investors often prefer 99.99% pure gold over the 91.67% gold used in the American Gold Eagle, many were choosing non-U.S. coins, such as the Canadian Gold Maple Leaf, to meet their bullion needs. With the American Buffalo coin, the U.S. government hopes to increase the amount of U.S. gold sales and cash in on the 24-karat sales, which makes up about 60% of the world gold market.

On September 26, 2008, the U.S. Mint announced that, temporarily, it would halt sales of the American Buffalo coins because it could not keep up with soaring demand as investors sought the safety of gold amid the subprime mortgage crisis of the late 2000s, which had also affected the price of gold.