(Bloomberg) -- Global regulators are preparing to tighten restrictions on investment funds and shadow lenders, concluding they threatened the stability of the financial system at the height of this year’s pandemic-fueled market volatility.

Key areas of vulnerability during the March mayhem included big investors’ dash for cash, significant redemptions in mutual funds and non-government money market funds, as well as leveraged hedge fund trades in Treasuries, the Financial Stability Board said in a report published Tuesday in Europe. The panel of global regulators indicated it would issue proposals next year to make money market funds more resilient and then address risks posed by the broader non-bank financial sector in 2022.

The FSB said this year’s stress would have been much worse if the U.S. Federal Reserve and central bankers around the world had not rushed to the rescue with unprecedented support.

“It’s clear we need to take action to address these issues,” Randal Quarles, chair of the FSB and vice chairman of supervision for the Federal Reserve, told reporters during a Monday press briefing. He warned in a letter accompanying the report that the financial system remains vulnerable, because the “structures and mechanisms that gave rise to the turmoil are still in place.”

Read More: Fed Signals Prime Money Market Funds Need Stiffer Rules

The report revealed particular strains as investors pulled cash from prime money market funds -- including $125 billion in March, a total that represented 11% of their assets. The redemptions pushed some funds to the brink of their liquidity limits. Without government intervention, the tumult could have been the first domino to fall in spreading mayhem throughout the financial system.

Banks were also reluctant to take the other side of trades, possibly feeling constrained by post-2008 capital rules, the FSB said.

The FSB has long looked at non-bank financial firms with concern, particularly because the industry’s assets under management have soared to $53 trillion. But Tuesday’s report signaled even more scrutiny. Next year, the FSB will begin more specific reviews of money market funds, leveraged investments and also a sudden jump in margin calls imposed by derivatives clearinghouses.

Fed Headed for a Clash With Hedge Funds, Other Shadow Banks

The FSB said it would consider new policies in 2022 to bolster the resilience of non-banks, including investment funds, insurers, pensions and other entities.

Responding to non-bank vulnerabilities has been a priority for Quarles, whose tenures as Fed supervision chief and FSB chair both end late next year. At the Fed, he may be replaced by U.S. President-elect Joe Biden before he has a chance to finish implementing new policies for non-banks.

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