The first consideration is that M1 is not defined in a useful manner because it excludes a lot of reserves (base money). So while one thinks of MB>M1>M2>M3...as a natural pyramid...it is not unfortunately.
Now how can this happen...how can MB held by banks not count toward M1? Shouldn't all reserves assets held at a bank have a corresponding demand deposit liability? Well no, because reserves can be matched against bank equity or against near-demand-deposits or even longer term liabilities.
So for example a bank could have say 10million in reserves + 90million in savings accounts matched against 100 million in debt. No demand deposits...so things look rosey, right? Of course not...the bank is still gambling as bad as ever and if/when a liquidity fire breaks out they are in trouble. Near-demand deposits are little different than demand deposits. Just slightly different interest rates and maturity times. Both types of deposits can overbook reserves and play their pyramid games.
In fact, in many ways our economic 'experts' have shifted away from measuring M1 and more so to M2 because M2 is so darn similar to M1. But when you look at the ratio of M2 to MB...now that is positive and a better (but not complete) gauge of what the banks are up to.
Now there are many specific reasons that explain why M1 can dive while MB can climb.
* Sweeps accounts (reserve requirement fraud...which banks make M1 look like M2 to avoid regulations)
* The Fed pays banks not to gamble some of money (big since 2008 and outrageous)
* Economy has more rich people or businesses have more money. Average Joes uses a demand deposit...businesses and rich guys will use interest bearing short term deposits. So this can be a sign the rich are getting richer.
* Basically, M1 gets promoted to M2 and it makes it look like M1 just vanished when it didn't.
* The money market is not functioning...this happened during 2008 with our liquidity fire and still hasn't restarted (it shouldn't naturally because it is based on fraud..so the fed is trying to artificially start it by dumping tons of reserves into the banking system).
* Banks being risk averse during tough times (which with all the new base money we have can mean hyper-inflation when they do start lending again...aka buying loans with counterfeit money).
Advanced FRB can kind of be summed up as mismatching shorter term liabilities against longer term assets. This is inherently unstable because there are always more short term promises than short term assets...and the financiers just have to hope that the short term promises never get redeemed or can be converted into long term promises. The government makes this fraud possible by adding more short term promises to the system in exchange for long term promises, to ensure that all short term promises can be kept.
Another modern consideration to consider is the role of the Fed's 'open market' and indirect lending from it. Banks don't have to lend in increments to achieve the full multiplier...they've studied this and banks just make whatever loans the loan officer feels are good. Then they achieve financing after-the-fact. Much of it comes indirectly from the Fed as demanded which is absurd. So take the classical multiplier model, and insert the banker has the indirect controller of the size of the monetary base and the ability to re-max new based instantaneously.