During the market turmoil in March, some investment funds and money market funds experienced significant liquidity stress, which exposed pre-existing vulnerabilities. Liquidity strains in the non-bank financial sector amplified the market sell-off and threatened to spill over to the broader financial system and, potentially, to the real economy.
Monetary policy actions taken by the ECB and other central banks around the world in the pursuit of their respective mandates helped improve market conditions during this period. But this episode highlighted that the resilience of the non-bank financial sector needs to be strengthened through regulatory reforms, which should also reflect macroprudential perspectives.