When Lehman Brothers collapsed in 2008 and shattered the belief that US money market funds would never "break the buck," Washington rushed to limit the damage. But as Europe's debt crisis threatens to put the US financial system under strain again, US policymakers are worried they cannot turn to those same, impromptu tools to shore up the $2.6 trillion money markets industry.
"We've done a lot to prepare the banking sector," Jeffrey Lacker, president of the Richmond Federal Reserve Bank, said on Wednesday. "I'm less confident about the money market funds and their ability to weather major problems at European institutions."
Senior US officials are alarmed by the deepening of the European debt crisis. Its spread to Italy, the eurozone's third-biggest economy, is seen as inevitably leading to spillovers across the Atlantic, in part through the holdings of money market funds of European securities.
Many investors believe money funds are as safe as lower-yielding bank accounts even though it is common knowledge that that they are not backed by the federal insurance that protects bank deposits.
During the chaos of 2008, dozens of money funds struggled to maintain $1 per share, but only one, Reserve Primary Fund, reported a net asset value below that level. Less well known, and of concern to US officials, is that the money funds cannot count on the protection measures that were pulled together to help them in 2008.
The Treasury Department is barred from reprising a guarantee program under the terms of the 2008 bailout of the US banking system. Congress, which agreed to the bailout only reluctantly, prohibited renewing the program on grounds that it was providing a false sense of security to investors who might expect government protection again in the future.
The Federal Reserve is also unlikely to dust off either of two facilities it set up in 2008 to ensure money market funds had cash to meet redemption requests - the Asset-Backed Commercial Paper Money Mutual Fund Liquidity Facility and the less-used Money Market Investor Funding Facility.
Today's rock-bottom interest rates and the fact that the government would need to charge fees for such guarantees mean that those types of emergency facilities would likely not be effective as a backstop.
Limitations on the Fed's emergency authority - it can no longer intervene to protect individual firms as it did in 2008, but must provide aid to an entire asset class - may further cramp the central bank's nimbleness in responding to a crisis.
Another Fed emergency liquidity facility dating from the US financial meltdown depended on a promise that the Treasury would absorb some of the losses if the collateral financial institutions pledged lost value. US lawmakers are now on a debt-cutting crusade and are unlikely to approve more bailout funds for the Treasury to use in that way any time soon.
All this has left some investors nervous about their exposure to what they used to see as the safe havens of money funds, managers said.
Such funds "breaking the buck are far and few between, but nowadays, everyone is looking at Europe, and they are seeing things they thought wouldn't happen now happening," said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco.
The firm manages about $750 million in assets.
He said about 25 percent of the firm's investments are in money markets that had been carefully vetted.
"We've had clients asking us to move to cash," Lip said. "We're getting more and more requests to move to cash entirely rather than invest in money markets."
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