This report, which was delivered to G20 Leaders ahead of their November Summit, provides a holistic review of the March market turmoil. The breadth and dynamics of the economic shock and related liquidity stress in March were unprecedented. The shock caused a fundamental repricing of risk and a heightened demand for safe assets. The stress also led to large and persistent imbalances in the demand for, and supply of, liquidity.

Particular activities and mechanisms in the financial system acted as mitigants or propagators of the liquidity stress. Central counterparties remained resilient despite market turbulence, though margin calls may have been larger than expected in some cases. Some investors in open-ended investment funds may have faced incentives to redeem ahead of others. While stronger bank capital and liquidity positions, built over the past decade as a result of the post-crisis reforms, helped to prevent a sharp rise in counterparty risks, banks may have been unwilling or unable to deploy substantial balance sheet capacity in an uncertain and volatile environment. Dealers also faced difficulties absorbing large sales of assets, amplifying turmoil in short-term funding markets. Market dysfunction was exacerbated by the substantial sales of US Treasuries by some leveraged non-bank investors and foreign holders. Absent central bank intervention, it is highly likely that the stress in the financial system would have worsened significantly.

The March turmoil underscores the need to strengthen the resilience of non-bank financial intermediation (NBFI). The review sets out an NBFI work programme, focusing on three main areas: work to examine and address specific risk factors and markets that contributed to amplification of the shock; enhancing understanding of systemic risks in NBFI and the financial system as a whole, including interactions between banks and non-banks and cross-border spill-overs; and assessing policies to address systemic risks in NBFI.