What is the weakest link in America’s financial system today? That is not a question many have asked recently. After all, US banks look pretty healthy these days, at least relative to the horrors of eurozone banks. And the unfolding Libor saga has dominated much of the political debate and regulatory attention.

But while the markets are distracted by Libor, an intense fight is bubbling, largely ignored, about one weak link in the system – America’s vast money market funds. And while it may not be producing the same fireworks as Libor, investors should watch this battle, since it could have big implications for the wider financial world.

The issue is whether this $2.6tn money market fund sector is vulnerable to “runs”. Before 2008, few observers ever asked that question, since the funds were considered extremely dull. After all, they are supposed only to invest in “safe” assets (think highly rated bonds) and they pay low returns. Moreover, it was widely assumed that money market funds would never “break the buck” (return less than 100 per cent of investors’ cash).