The substantial shrinking of US prime money market fund assets and the shift to government money funds as a result of US money fund reform has resulted in significant changes in short-term funding dynamics for global banks over the past year, said Fitch Ratings in a new report.Funding profiles have shifted in some banks, with reduced commercial paper issuance and increased secured funding from government money funds.More than two years after they were first announced, the SEC's new rules governing prime money funds went into effect just over month ago, on October 14. The rules now require that certain prime money funds have a floating net asset value and allow for liquidity fees and redemption gates, which could prevent withdrawals under certain circumstances. This has led to more than US$1 trillion being moved from prime money funds to government money funds that are exempt from the changes.Among the larger banking systems, it was the US, Canadian, French and Japanese banks that reduced the funding they take from US prime money funds the most (in absolute terms), according to Crane data compiled by Fitch. Each saw gross financial sector exposure from prime money funds fall in excess of US$100 billion. The US, Japanese and Canadian banks have significantly increased their borrowing from government money funds to compensate, with each replacing about one-quarter to one-third of the decline in funding from prime money funds. British banks - which saw about a US$40 billion decline in prime money fund exposure - replaced about 80 per cent of their reduced prime fund financing with borrowings from government funds.In contrast, other countries' banks that reduced US commercial paper issuance - including France, Sweden, Norway and Australia - did not switch to government funds. US commercial paper is not an important funding source for them. Overall, US prime money funds have reduced lending to banks and their affiliates globally by US$775 billion between October 2015 and September 2016, but the banks have replaced about US$151 billion of that, or 20 per cent, with government fund financing.As a share of total funding, the short-term financing, represented by prime money funds for banks, in general, is small. However, some banks may be more affected, and the net effect will likely be higher short-term funding costs.Shifting to government fund financing from prime money fund financing also means moving from what is usually an unsecured source of funding to secured borrowing backed by Treasury bills or federal government agency securities. Encumbering Treasuries or agencies in the form of a repo with government money funds may also have a regulatory capital cost for some banks.NOTE: The above article originally appeared as a post on the Fitch Wire credit market commentary page. All opinions expressed are those of Fitch Ratings.