Since the Reserve Primary Fund broke the buck in September 2008, the nation's money market mutual funds have seen a long, steady erosion of their use by corporations and financial institutions.

By the end of 2011, corporations and other institutions had $851.3 billion in money funds, according to the Investment Company Institute. That's down from $1.25 trillion at the end of 2008.

Yet, in the week ending July 25, institutional investors put $18.4 billion into money funds. That put institutional holdings in money funds back to their level of the week ending May 23.

"If anyone was worried about safety or was sick of the zero yields, they'd be long gone by now," said Peter Crane, president of Crane Data, which publishes Money Fund Intelligence.

Businesses have far outpaced financial services firms in the pullout. Corporations have shed 36.4% of their holdings. Treasurers have pulled out $258.6 billion, leaving their firms holding $452.0 billion.

Financial institutions have pulled out less than half that amount-$113.0 billion-leaving them with $300.7 billion.

The primary driver has not been the Securities and Exchange Commission's 2010 round of reforms of the money fund industry. Nor is it the imminent expectation of another tougher round of reforms that chairman Mary L. Schapiro has been working on ever since. That could include a proposal to permanently break the buck -the principle that the net asset value of a share of a money fund should always be $1.00.

"That would be very poor policy,'' Federated Investors chief executive Christopher Donahue said last week. Ending daily liquidity at par, with a return on top "will end money market funds as we know them,'' he said.

Money would likely move, he said, into "far less transparent and less regulated investments,'' such as separate accounts, offshore accounts and accounts still to be imagined and created.

But, for now, the driver is a merciless search for a return, any return, in what Crane calls a "zero-yield environment."

"Corporate treasurers have had three and a half years now of extremely low interest rates,'' said Shelly Antoniewicz, senior economist of the ICI. "They're going to look around and make sure they can get the most that they can get from that money and keep it in relatively safe investments.''

That, right now, seems to be bank deposits. With returns non-existent, parking money in bank accounts can look a lot more attractive than money funds. Because, for now, they're insured.

In the aftermath of the credit crisis of 2008, Congress created a Transaction Account Guarantee program. Assets of any amount held in non-interest-bearing accounts would be fully insured by the Federal Deposit Insurance Corporation.

"Non-interest-bearing used to mean something when there were interest rates,'' Crane said. "Now that everything is earning nothing, then the FDIC insurance has the upper hand."

Right now, 10-year Treasury bills pay 1.47%. A year ago, 2.97%. One-year notes? Fahggedaboutit. Two-tenths of one percent. Inflation? 1.7% per annum, according to the Bureau of Labor Statistics.

The pullout, says Antoniewicz, is not wholly unexpected. In 2007 and 2008, before the credit crisis exploded, roughly $1 trillion went into money market funds. "That is a classic flight to quality,'' she said.

Now, corporate treasurers and financial investors are unwinding their moves into the safest of investments and trying to find some kind of real return, somewhere.

That, she says, can be Treasury bills, commercial paper, certificates of deposit and similar products.

"Businesses who rushed to government securities as we saw during the financial crisis, they realize that the storm has passed and they will unwind that. They will take it out of there and put it in something else that might have a little bit more premium to it,'' she said.

For now, that seems to be putting more money into banks. Because big corporate customers can get the safety of federal insurance on their deposits-and earn a return.

This is what is referred to as "earned credits." If you put enough money into an account at my bank, I'll give you discounts on related services. You do the math.

"Banks will in effect reduce the fees that you pay for your sweep accounts, your lockboxes and other services you use,'' Crane said. "You earn by virtue of having your fees reduced."

This could change. The Transaction Account Guarantee program is slated to end on December 31. The Senate Banking Committee is considering an extension. But, at press time, that was still not determined.

If the program is extended, corporations will likely stand pat on their bank deposits. Or increase them.

When asked this question in the 2012 Association of Financial Professionals Liquidity Survey, 59% of respondents indicated it wouldn't have a meaningful impact on their bank deposits. At the time of the survey, bank deposits were the investment of choice for 59% of liquid funds being held by corporations, up from 42% a year earlier.

"Money that flowed into bank deposits in 2012 appears to have flowed out of U.S. Treasury bills and money market funds, as those allocations saw the largest allocations drop year-over-year,'' said Tom Hunt, director of treasury services for the AFP, in Bethesda, Md.

Money funds would not even be the second choice, he said. With pending money market reforms yet to materialize and with corporate treasurers being "extremely conservative,'' Treasury securities "would be the logical choice at this point if they did choose to allocate away from bank deposits,'' he said.

Antoniewicz is not so sure.

The 2010 reforms made "money market funds more resilient, more liquid, more able to handle financial crises, which we saw last summer during the European crisis" when money flowed out of money funds, but "there wasn't any sort of problem, not even a little hiccup with money market funds being able to handle redemptions,'' she said.

And even if further reform is not driving the pullout, it can have an effect. If the SEC requires money fund sponsors to establish capital buffers against runs on the assets theyre holding, money fund yields will suffer, Hunt says. That's because the capital buffer sets aside money and lowers the return of a fund.

In what already is, in institutional investors' minds, close to a no-win market, as it is.

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