Non-banks should hold ‘more cash to cope with margin spikes’

LONDON, Apr 17 (Reuters): "Non-banks" such as insurers, hedge funds, family offices and commodities traders should hold sufficient cash and draw up contingency plans for coping with spikes in collateral used to back derivatives positions against default, the G20's financial watchdog proposed on Wednesday.

Non-banks account for nearly half of the world's financial system, and in the latest sign of how the sector is being more closely scrutinised, regulators want to avoid a repeat of central banks having to inject liquidity into markets to help funds of various types.

This happened during the "dash for cash" in March 2020 when economies went into lockdown to fight the COVID-19 pandemic, hitting money market funds, and after Britain announced unfunded tax cuts in September 2022, leaving liability-driven investment funds struggling to meet additional margin calls

The collapse of family office Archegos in March 2021 and the extreme volatility in commodities after Russia invaded Ukraine also showed how some non-banks are poorly prepared to handle surges in margin calls, the Financial Stability Board (FSB) said.