A senior Federal Reserve official calls for a more fulsome analysis of the events surrounding recent US bank failures and draws Switzerland in as well. finews.asia takes a look.
The speech was held on Sunday by Federal Reserve governor Michelle Bowman at a global seminar in Salzburg, Austria, and while the views expressed were her own, she didn't mince words.
Although the supervision of banks has «evolved substantially» since the 2008 financial crisis, and has continued to adapt over time, Bowman was fully aware of how this year’s events had cast another pall on the industry and its supervisors.
Particularly Relevant
«This is particularly relevant now in light of the calls for reform of the regulatory framework, motivated in part by a desire to remediate perceived weaknesses that contributed to recent bank failures,» she said.
She mentioned the demise of Silicon Valley Bank, Signature Bank, First Republic Bank, and Credit Suisse, which was forced by the Swiss government into the hands of UBS.
Key Deficiencies
«Many of the problems we have seen at these banks — interest rate risk, liquidity risk, poor risk management — are not caused by any evolution in banking. These bank failures and recent stress in the banking system have highlighted key deficiencies in risk management practices and key deficiencies in supervisory priorities,» she said.
The Fed and other agencies were trying to determine what more could be done, she viewed the engagement of an independent third party to analyze events surrounding recent bank failures as a necessary next step.
Pressing Deadlines
Several internal attempts were made by the Fed, but it relied on a limited number of «unattributed source interviews» of relatively narrow scope, completed on pressing deadlines.
«There is a genuine question whether these efforts provide a sufficient accounting of what occurred,» Bowman indicated.
Substantial value could be gained from a third-party review.
«A supplemental, independent review would help overcome the limitations of scope and timing of these initial efforts, and address concerns about the impartiality and independence of the reviews,» Bowman said.
Future of Regulation
Diagnosing what went wrong could also potentially play an important role in determining future regulation and supervision.
«Misperceptions and misunderstandings about the root causes and related issues could result in changes that are not only unnecessary but result in real harm to banks and their customers, to the financial system, and to the broader economy,» Bowman said.
Swiss Parliament
Several things afoot requiring an extensive post-mortem of the Credit Suisse debacle, among them a planned Swiss parliamentary commission of inquiry, so it might be an idea to have all parties come together. That would involve the Fed, the Swiss National Bank, Finma, and the federal finance department to agree on the appointment of an external international auditor to give everyone the same report on which to base their conclusions.
Unfortunately, there are numerous bureaucratic hurdles likely standing in the way, including financial and jurisdictional, possibly even linguistic. It means we are apt to end up seeing many different truths about what happened, and the reasons for it.
