Regulatory Alerts2022-11-02
Liquidity Risk of Margin Calls in March 2020
The Dutch Authority for the Financial Markets (AFM) issued this report analyzing the severe liquidity risks faced by Dutch asset managers managing derivative portfolios for pension funds during the March 2020 market shocks. The study reveals that five major managers were forced to post EUR 29 billion in margin calls within seven days, primarily by liquidating short-term debt and money market fund assets, which inadvertently strained money market liquidity. The report concludes that while central bank intervention prevented a crisis, future stress could cause systemic issues, recommending reforms in money markets, optimal liquidity-to-sensitivity ratios, and solutions for using high-grade government bonds as collateral.
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