The Financial Stability Board is to conduct a review of the recent episode of banking stress, which wreaked havoc on stock markets in general and the banking sector in particular.
Equity markets went on a roller coaster ride in the wake of the Silicon Valley Bank collapse and UBS’ government engineered 3 billion Swiss francs ($3.25 billion) rescue for Credit Suisse on Monday, March 20th.
This represented about 60% less than the amount the bank was worth when markets closed on the Friday, the 17th.
“The speed of developments in March, the precise nature of the vulnerabilities that crystallised and the associated market reactions provide important lessons for financial authorities,” said Klaas Knot, FSB chair and Netherlands Bank governor, in a letter to the the finance ministers and central banks of the G20 nations.
Knot said the recent turmoil in the banking industry underscores the need for greater action.
“Events in the banking sector over the last month have been the latest in a sequence of shocks that have buffeted the global financial system in recent years,” said Knot, who is also head of the Dutch central bank.
“But, unlike most other recent shocks, this latest episode had its origins within the financial system,” he added. “So the need for financial authorities to learn lessons, and act upon them, is all the greater.”
The FSB is working closely with the Basel Committee on Banking Supervision and other standard-setting bodies to comprehensively draw out these lessons and the consequent priorities for future work
Pablo Hernández de Cos, chair of the BCBS, which sets the global banking rule book, said changes to liquidity requirements would be an area in focus as the committee “considers the implications of recent events”, but stressed that regulation alone was not the answer.
“The boards and management of banks should be the first port of call in managing and overseeing risks; these functions cannot be outsourced to supervisors,” said Hernández, who is also governor of the Bank of Spain.
Resolution frameworks, which allow banks to be wound down with minimal disruption and without bailouts, were one of the key policy tools developed in the aftermath of the financial crisis.
However, Switzerland chose not to use Credit Suisse’s internationally agreed plan when the bank ran into difficulty, instead engineering a merger with Swiss rival UBS.
©Markets Media Europe 2023
