The world’s top financial authorities need to learn the lessons from the Silicon Valley Bank’s (SVB) collapse, the chair of a major global regulatory body warned today, hinting at the need for more stringent bank rules to prevent such chaos in the future.
Klaas Knot, chair of the Financial Stability Board (FSB), noted the financial sector has been buffeted by a series of shocks in recent years – including the Covid-19 pandemic and the Russian invasion of Ukraine – but “unlike most other recent shocks, this latest episode had its origins within the financial system.”
“The need for financial authorities to learn lessons, and act upon them, is all the greater,” he wrote in a letter to G20 finance ministers and central bankers.
The FSB was set up post-financial crisis as a successor to the Financial Stability Forum. It monitors the global financial system and makes recommendations on regulation.
While Knot praised the “rapid and effective actions” taken in the US and Switzerland to contain the fallout from SVB’s collapse and Credit Suisse saga, he warned that “we cannot be complacent”.
“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,” Knot continued.
Knot said that despite this “reprioritisation” of the FSB’s work, it would remain committed to areas such as crypto and shadow banking.
Regulation of the banking sector has been in the spotlight since the collapse of SVB bank with accusations that regulators in the US were asleep at the wheel.
Although regulators have stressed that the financial system is better placed than it was pre-2008, the recent mini-crisis has revealed new threats to the financial system.
Regulators have been especially worried about how much easy-access cash banks should hold in the event of a bank run.
Social media and mobile banking enables bank runs to hit with much greater ferocity. SVB saw $42bn pulled by depositors in a single day – the largest bank run in history.
Many prominent figures, including former governor of the Bank of England Mark Carney and head of the Prudential Regulation Authority Sam Woods, have suggested that liquidity rules could need “recalibrating” to reflect new threats to the sector.