Sam Woods spoke at Mansion House on prudential regulation and supervision in the particular context of bank failures – looking specifically at SVB and Credit Suisse. He said that there is much to be done to improve and refine the regulatory regime for banks but there are positives – such as that the recent failures have not led to systemic crises.
He said that a world with no bank failures is not practically possible, and incompatible with having a private banking system. So the challenge is to have a zero-tolerance regime for systemic financial crises while not having a zero-tolerance regime for bank failure.
He discussed the roots of the two failures, which were different – but the system for dealing with both worked with one bank being successfully resolved and the other rescued in an economically similar manner. Contagion to the global banking system was limited.
The challenges now include improving the quality of bank capital, considering whether liquidity regulation is at the right level (although he noted that it is unlikely either failure could have been avoided if liquidity regulation had been different), and learning that just apparently having a lot of money is not enough to ensure confidence in banks is not damaged. The key also is to have good regulatory tools to achieve “successful failures”, which will include the need for further work on depositor continuity.
Finally he looked at the need for the right resolutions for the right firm – including how many smaller businesses are not insolvent but decide to stop business, which is why PRA is consulting on improving ease of exit for those firms. He also commented that the UK’s decision to require SVB to subsidiarise had proved useful, and PRA is further considering its approach to branching.