Who was to blame for the failures of Silicon Valley Bank, Signature Bank NY, and Credit Suisse?
The most obvious culprits are the bankers.
In a speech last week, Pablo Hernandez de Cos, chair of the Basel Committee on Banking Supervision, despairingly opined: We need to start by asking why, in 2023, some banks have failed to meet basic risk management and governance practices.
it only takes a couple of rogue banks to destabilise the whole system.
At the time of its failure, Silicon Valley Bank was the US’s 16th largest bank by assets. But under the US’s regulatory regime, it was treated as a small bank.
It didn’t have to submit itself to the intrusive supervision and stress testing imposed on the US’s biggest banks. It was subject to reduced Basel liquidity coverage ratio and net stable funding regulations. It was exempted from large exposures reporting. And it was able to avail itself of special concessions afforded to small banks, such as opting-out from including fair value losses on available-for-sale securities in regulatory capital calculations.
The Bank for International Settlements is now seizing the opportunity created by the failures of Silicon Valley Bank and Credit Suisse to review international capital and liquidity regulations with a view to tightening them up. Never waste a good crisis, as the saying goes. But it might find it hard to buck the current political trend towards “nationalism and sovereignty”
This year is the tenth anniversary of the financial crisis in Cyprus, which saw an unprecedented bail-in of uninsured depositors in two banks.
It’s less than fifteen years since the fall of Lehman Brothers, and here we are, talking about banks again, and trying to figure out what to do to make them safer.
COPPOLA COMMENT 18 April 2023
Banking Crises Are Preventable, But Human Nature Gets in the Way
From 1300s Venice to 2023 Silicon Valley, financial panics arise from an endless cycle of complacency, risk-taking and fear.
One of Jamie Dimon’s daughters called him up from school with a question more than a decade ago: “Dad, what’s a financial crisis?”
The billionaire who runs JPMorgan Chase & Co. tried to put her at ease. “It’s the type of thing that happens every five to seven years,” he told her, he later testified to the Financial Crisis Inquiry Commission.
She asked him on the phone why people seemed so surprised by the calamity. In Washington, when he told this story, he said we shouldn’t be.
That’s because the history of banking is, at least in part, a kind of horror story that keeps repeating itself.
Max Abelson Bloomberg 15 april 2023
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