Key takeaways

• Short-term dollar funding markets experienced severe dislocations in mid-March 2020, with funding diverted from unsecured funding markets as investors withdrew and switched to secured funding markets and government MMFs.
• Outflows from US prime MMFs led to a loss of funding for banks and a significant shortening of funding maturities; this precipitated spikes in indicators of bank funding costs, such as the LIBOR-OIS spread, despite banks not being at the epicentre of the liquidity squeeze.
• The turmoil highlights broader lessons for MMF regulation, the role of non-banks for monetary policy implementation, and the role of the central bank during stress.