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

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

By squelching demand from prime funds, the rules caused commercial paper rates to rise relative to those of other money-market securities. Rates are now at the highest levels since the financial crisis, causing borrowers to seek new sources of funding like the short-term securities lending market. Investors are also feeling the pinch — most money funds are stuck with Treasury bills offering paltry rates. What's more, the massive shift toward funds that can only buy the safest U.S. debt has created the potential for a bottleneck if Congress is unable to resolve long-simmering disputes related to the nation's debt ceiling.