[bootwoot]

That's exactly what Silicon Valley Bank did. While federal bonds are nearly risk free in terms of default, they still suffer from interest rate risk -- that is, they may lose significant value if interest rates rise. In the case of SVB, US treasury bonds lost enough value to make the bank insolvent.

[samtho]

Money market accounts use the same vehicle (treasuries) and still manage to be ostensibly safer than smaller banks at the moment. These funds manage their investments by continuously buying new bonds and selling off old thus limiting the risk exposure to all but the most sudden interest hikes.

[Scoundreller]

I think money market accounts don’t sell off old, but rather they hold short dated stuff to maturity. And constantly reset the rate they pay holders.

Of course, they can have counterparty risks. The counterparty is usually unprepared to actually pay up and expects to rollover its debt.

Sometimes that melts down and doesn’t happen:

https://globalnews.ca/news/160176/coventree-executives-faile...

(Scroll down to Canada in 08-09 here):

https://en.m.wikipedia.org/wiki/Asset-backed_commercial_pape...

[lumb63]

They also, AFAIK, don’t make loans like mortgages, auto loans, credit card lines, etc. All those loans are subject to the same interest rate risk. They’re not nearly as liquid, either.

[basicecon101]

Yes, but because this poster thought this arbitrage was obvious and would solve all our problems, the political issue of banking regulation remains. It is a Dunning Kruger trap.