The Federal Reserve Board believes that deposit insurance reforms should be designed to preserve the benefits of heightened financial stability and the protection of small depositors without at the same time further increasing moral hazard or reducing market discipline. In addition, we urge that the implementing details be kept as straightforward as possible to minimize the risk of unintended consequences that comes with complexity.
Third, the significant increase in margin calls in derivatives markets during the March 2020 turmoil also exacerbated the liquidity stress, as certain non-bank financial institutions had to liquidate assets to meet these margin calls. Some non-banks had been using money market fund shares to store and manage cash, therefore the need to meet margin calls eventually spilled over to MMFs.