US prime money market fund exposure to eurozone banks declined by a third in June, according to Fitch.

European banks now make up only 8 per cent of holdings, according to a study by the ratings agency of the 10 largest US prime money market funds. This figure also represents a record low since Fitch began tracking exposure back in late 2006, it said.

As funds withdrew financial sector positions in euro countries and also the UK, they ramped up allocations to Nordic banks, meaning that overall allocations to European banks declined only “modestly,” Fitch said.

Meanwhile, money market funds have steadily increased their exposure to Japanese banks, doubling exposure since May 2011, at almost 12 per cent of assets currently. Exposure to Canadian and Australian banks remains relatively steady.

The 15 largest exposures to individual banks collectively represent around 43 per cent of money market fund assets, Fitch said, and eurozone institutions have been rapidly disappearing from this "top 15" group. Only one eurozone institution now appears on the list, compared to three at the end of May, and seven at the end of May 2011.

“Money fund disengagement stems from both ongoing risk aversion and heightened caution by some European banks and their regulators on using this potentially volatile form of funding,” said Robert Grossman, managing director, Fitch macro credit research.

There are other signals of risk aversion, as money market funds continue to hold over 20 per cent of assets in short-term US Treasuries, while a further 10 per cent is held in repos collateralized by Treasuries and Agencies.