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Liquidity buffers introduced after global financial crisis
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BoE's Bailey says questions about how big they should be
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Basel Committee's de Cos warns against hasty reforms
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De Cos: stocktake of banking turmoil starts with bank
boards
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US FDIC: Silicon Valley Bank demise due to management
failures
(Adds Basel Committee Chair, ECB data, US regulator)
By Huw Jones
April 12 (Reuters) - Bank of England Governor Andrew
Bailey said bank reforms enacted after the global financial
crisis of 2007-09 worked during the recent banking turmoil, but
there were questions about whether banks should set aside bigger
cash buffers in future.
The failure last month of Silicon Valley Bank and two other
lenders in the United States, along with the forced takeover of
Credit Suisse by UBS sent banking shares globally into a
tailspin, but markets have since calmed.
Regulators have said the episode represented the first big
test of the tougher banking rules that were brought in after the
global financial crisis, but debate is emerging over whether the
rules need tweaking.
"The post-crisis reforms to bank regulation have worked,"
Bailey said in a speech on Wednesday to the Institute of
International Finance in Washington where he is attending
International Monetary Fund meetings.
"Today I do not believe we face a systemic banking crisis.
When I look at the UK banks, they are well capitalised, liquid
and able to serve their customers and support the economy."
Bailey, however, echoed calls from his predecessor Mark
Carney by saying there might be questions over the size of
liquidity buffers required of banks in order to tide them over
short-term shocks.
"We can’t assume that, going forwards, the current answer on
the total size of liquidity protection is the correct one," he
said.
"We saw with Silicon Valley Bank that with the technology we
have today – both in terms of communication and speed of access
to bank account – runs can go further much more quickly. This
must beg the question of what are appropriate and desired
liquidity buffers that create the time needed to take action to
solve the problem."
The speed at which depositors can withdraw cash with a click
on their smartphone has become a factor for regulators.
Data from the
European Central Bank on Wednesday showed a slight weakening in liquidity buffers at banks it regulates, though they are still well above
minimum requirements .
NO HASTY CONCLUSIONS Speaking at the same event, Pablo Hernandez de Cos, chair of the Basel Committee, whose members include the BoE and which sets global bank capital and liquidity standards, said regulators should not hastily jump to conclusions about the causes of banking turmoil or what reforms may be needed. Banks' holdings of liquidity have more than doubled since the global financial crisis, helping to contain fallout from the recent banking turmoil, de Cos said.
"We should not hastily jump to conclusions, nor should we close any doors. Nevertheless, once our stocktake is completed, remedial actions should be taken if deemed necessary," de Cos said.
Board members at some banks, however, have questions to answer about how they were monitoring risks on their books, added de Cos, who is also governor of the Bank of Spain.
Separately, a top official at the U.S. Federal Deposit Insurance Corporation said on Wednesday that management failures lay behind the demise of Silicon Valley Bank, which stricter banking rules could not have prevented. Bailey said future size and make-up of banks' liquidity buffers would influence how far central banks go in reducing the size of the bond holdings they have acquired since the financial crisis and which grew further during the coronavirus pandemic. "We don’t know yet where central bank balance sheet reduction will need to stop in terms of the necessary level of reserves," Bailey said. (Reporting by Huw Jones, editing by William Schomberg and Toby Chopra)
Reuters Messaging: william.schomberg.reuters.com@reuters.net))