Money market funds in Europe that can no longer return all your cash remain popular with companies due to a lack of alternatives, even if an era of increasingly negative interest rates may demand a broader rethink of cash management.
Outflows from the money market funds that keep the financial system flowing have stabilised, allaying concerns that their withdrawal could seed a banking crunch like that in the United States eight years ago.
But for some fund managers, doubts niggle as to whether firms will take even more radical steps to avoid charges if the European Central Bank keeps pursuing the negative rate experiment it began in 2014.
That has prompted a collapse in bond yields across the 19-nation bloc, dragging money market rates below zero.
"Investors pulled out of money market funds originally and looked for different solutions to find a positive yield but ultimately, not finding suitable alternatives, they chose to come back," said Alastair Sewell, senior director, fund and asset managers at credit-rating agency Fitch.
European money funds invest nearly 1 trillion euros of firms' spare cash across short-term, safe assets like government bills and bank paper, ensuring it can be swiftly returned if a company needs it to pay its employees, for example.
Data from the Institutional Money Market Funds Association (IMMFA), which offers a snapshot of 20 of the most conservative money fund managers, shows that when the first euro funds recorded negative returns last year there was a rush of redemptions.
The money invested in these funds, which stood at 88 billion euros ($98 billion) in March 2015, declined by more than 20 percent in the space of three months.
Yet despite a further ECB rate cut at the end of 2015 and the fact that all IMMFA's euro funds lost money over the course of the year, assets have remained stable at around 70 billion euros in the eight months since.
Even if money market fund investors consider opting for plain bank current accounts instead, they may find that banks charge them or just don't want their money.
That's because banks are looking for ways to offset the charges they bear on keeping reserves with the central bank while new regulations also require them to put up more capital against unstable, short-term sources of funding.
Market concerns about the health of Europe's lenders may also have made firms think twice about putting all their money with one bank, rather than spreading the risk through a money market fund.
"If yields have gone negative, there is no free lunch to be had ... particularly if the investor is still focused on holding high quality assets," IMMFA's secretary general Jane Lowe said.
Some money market funds have tried to tiptoe further out along the maturity curve and lower down the quality spectrum to eke out a few extra basis points, but their ability to do this is restricted.
While European money markets are not on the same scale as those in the United States, where they play a critical role in bank funding, regulators have been eager to avoid a repeat of 2008 where US money market funds shored up a financial boom by buying commercial paper backed by sub-prime mortgage debt.
When that debt was found to be toxic, money markets stepped back, helping to trigger a global credit crunch.
The losses that European money funds are now incurring are not so much a threat to the financial system as a simple reflection of what J. P Morgan estimates as 1.6 trillion euros of sovereign debt carrying negative yields in the euro area. This includes nearly all short-dated paper that money market funds would typically invest in and interbank lending rates that most funds are benchmarked against.
But will there come a point where it is so costly for a firm to keep its cash in the financial system that it makes more sense to stuff it in vaults with armed guards?
Market pricing suggests the ECB will cut its -0.3 percent deposit rate to -0.5 percent by the end of the year - at which point some academics believe investors would consider transferring their money into physical cash.
J. P Morgan said last week that the ECB could cut rates to -0.7 percent by the middle of the year and theoretically at least as low as -4.5 percent over time.
While some money funds do not dismiss the possibility that further cuts could prompt a resurgence in outflows, their experience of negative rates has given them confidence that investors always want instant access to electronic cash, even at heavy cost.
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