Regulators' effort to stamp out risk in the $2.6 trillion U.S.money-fund industry is creating unintended ripple effects acrossfinancial markets, with far-reaching consequences for companies andinvestors.

Far less cash than anticipated has returned to thehigher-yielding slice of the money fund world after the overhaulthat took effect in October led to a $1 trillion exodus from whatare known as prime funds. Such funds had been the principal buyersof the commercial paper that companies and both foreign anddomestic banks have sold for decades to obtain short-term U.S.dollar-denominated financing.

By squelching demand from prime funds, the rules causedcommercial paper rates to rise relative to those of othermoney-market securities. Rates are now at the highest levels sincethe financial crisis, causing borrowers to seek new sources offunding like the short-term securities lending market. Investorsare also feeling the pinch — most money funds are stuck withTreasury bills offering paltry rates. What's more, the massiveshift toward funds that can only buy the safest U.S. debt hascreated the potential for a bottleneck if Congress is unable toresolve long-simmering disputes related to the nation's debtceiling.