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Money-Market Fund Woe Becomes a Headache for Borrowers

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For decades, money-market mutual funds offered better returns than bank deposits, were just as accessible and seemed just as safe -- until they needed a federal bailout at the height of the 2008 financial crisis. That led to reforms meant to make the industry safer, while still allowing users to pursue higher yields, and investors started to drift back. But now the Federal Reserve has driven rates so low that the extra risk hardly seems worth it. That’s creating problems not just for fund managers but for corporations that have long relied on money markets to fund their day-to-day operations.

They’re kind of like banks but not quite. While both take deposits that can be withdrawn at any time, banks use them to make loans that can tie up the money for years. That mismatch historically made bank runs a constant danger since no one wanted to be the last in line to get their money back if an institution was going under. But government-imposed systems of deposit insurance have made runs largely a thing of the past for banks.