March’s market bailout demands regulatory payback

Regulators will propose changes to money-market funds next year after pandemic lockdowns in March highlighted how the $6.9 trillion sector struggled under severe stress, the Financial Stability Board said on Nov. 17.

The FSB, which coordinates financial rules for the Group of 20 major economies, said in a report to G20 leaders that the turmoil in markets in spring had exposed vulnerabilities throughout the financial sector. But further investigation is warranted into money-market and open-ended funds, into how derivatives clearing houses vary margin or cash calls to cover trading positions, and into the structure of bond markets, the FSB said.

“It’s clear we need to take action to address these issues,” Randal Quarles, chair of the FSB and vice chair of the U.S. Federal Reserve, told reporters. Without central banks doling out liquidity to maintain stability, sectors such as money-market funds would probably have fared far worse in the “dash for cash”, the FSB said.

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