The ECB and the national micro- and macroprudential authorities deployed extraordinary measures to limit the consequences of the pandemic, acting in a countercyclical manner. The ECB encouraged banks to use their capital and liquidity buffers for lending purposes and loss absorption. We also continue to closely monitor risks in the non-bank financial sector.
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.