By Huw Jones
LONDON (Reuters) – Board members at banks have urgent questions to answer about basic risk management following recent turmoil, the head of a global banking standards committee said on Wednesday, but said regulators should not rush into remedial action.
Pablo Hernandez de Cos, chair of the Basel Committee of banking regulators, said work has begun on what lessons could be learned from the collapse last month of Silicon Valley Bank and two other U.S. lenders, and the forced takeover of Credit Suisse by UBS, echoing other global regulators.
These events marked the first real stress test of banks since the global financial crisis of 2007-09, de Cos told an Institute of International Finance roundtable in Washington.
While it was unlikely a single culprit was to blame, he said the “whodunnit” task should start with bank boards.
The first step is to ask why the boards of some banks fail to check on basic risk management and governance practices or respond to “excessive reliance” on limited funding sources or growing misconduct incidents, said de Cos, who is also governor of the Bank of Spain.
“A bank’s board, senior management and risk management function should be asking themselves questions in a timely fashion and taking credible measures to shore up resilience,” de Cos said.
De Cos also said supervisors should also ask tough questions and take “decisive action” to ensure safety and soundness of banks.
Mark Carney, former governor of the Bank of England and former chair of the Financial Stability Board (FSB), the G20 watchdog that drove through post-global financial crisis reforms of banking rules, has called for a rethink of bank liquidity rules.
Banks’ holdings of liquidity have more than doubled since 2011 to 12.5 trillion euros ($13.66 trillion), helping to contain fallout from recent stresses, though stakeholders’ influence meant liquidity rules ended up being less conservative than originally drafted, de Cos said.
“So my first observation today is that we should be humble and open-minded at this stage when it comes to assessing recent developments and the implications for banks, regulators and supervisors,” de Cos.
“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.”
($1 = 0.9154 euros)
(Reporting by Huw Jones; editing by Barbara Lewis)
