If you’re interested in the financial crisis, the March 2023 bank failures may spark your curiosity. How can regulators prevent a similar event from happening in the future?

We’ll start with a quick TLDR of the situation.

The Affected Banks: 3 + 1

There were three significant bank failures in the US: Silicon Valley Bank, Signature Bank of New York, and First Republic Bank. Before the failures, these banks faced rising interest rates and apparent poor interest rate risk management.

On a side note: Swiss bank Credit Suisse also experienced serious difficulties, resulting in a rescue merger deal with UBS. The bank was severely affected by many issues including capital sufficiency and poor investor confidence.

Regulators Reflect on Potential Changes

Regulators around the world are considering ways to prevent similar banking turmoils in their countries. For example, the Bank of England discussed how to improve and refine the regulatory regime of banks.

It was clear that clients had been withdrawing their funds and assets for some time prior to the bank runs. The risk indicators being used were no longer suitable to identify such a crisis of confidence in a timely manner.

Market signals and regulatory metrics should be used in tandem to evaluate a bank’s viability. Regulatory indicators alone do not provide a complete assessment of the levels of capital and liquidity available in banks.

Because of the unprecedented speed and scale of deposit runs, market sentiment will need to be monitored more closely. With the widespread use of mobile banking and social media, uncertainty can quickly lead to a rush of withdrawals, causing runs of extraordinary speed and widespread financial disruption.

Check out our previous post on shadow banks and US loans.