Treasuries: "Risk Free" or "Risk Unlimited"?

The high-profile collapse of Silicon Valley Bank last week is a story about bad debt, just not in the way most people think.

Bank executives didn't issue too many loans to poor quality borrowers. They made what they believed to be conservative investments in the safest of all assets. The bad debt turned out to be U.S. Treasuries - an asset class they assumed to be "risk free."

This assumption was reinforced by regulatory requirements which artificially incentivize bankers to hold U.S. Treasuries as a tier one asset and bulletproof collateral.

Today they are questioning the conventional wisdom about the risks of holding U.S. debt. So are investors and finance executives everywhere.

Rising interest rates led to catastrophic losses in SVB's portfolio of Treasury debt and mortgage backed securities. The losses created a capital shortfall and spawned a good old fashioned bank run. Regulators stepped in and closed the bank Friday.