Specifically, the agencies have been working to develop joint guidance to clarify regulatory expectations around thirdparty risk management, which will be an important step in supporting innovation built on thirdparty partnerships. This guidance could be particularly helpful for small banks. But clearer guidance and regulatory expectations will not fully address these challenges.
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.