Recent Banking Failures: A Deep Dive at the London RegTech Forum
Craig Donaldson, Former CEO at Metro Bank
Saida Chakri, Global Regulatory Transformation Head at Citibank
Dawd Haque, Global lead for Regulatory Market Initiatives, Transformation and Strategy at Deutsche Bank
Douglas Robinson, Dispute Resolution and Regulatory Compliance at Simmons & Simmons
Diana Paredes, Suade CEO
The iconic Guildhall's Old Library recently hosted our esteemed annual RegTech Forum, organised in partnership with the City of London Corporation. This prestigious gathering convened a select panel of experts from leading banks, building societies, the tech industry, and regulatory authorities. The forum's objective was to illuminate recent transformations in the finance and banking sectors. The second-to-last panel delved into the topic of "Recent Banking Failures," providing a comprehensive analysis of the challenges and lessons learned from past banking crises.
Recent Banking Failures - The SVB Incident and Beyond
The panel discussion began with a representative from the banking sector characterizing the SVB incident as a traditional bank run, albeit amplified exponentially by social media platforms, notably Twitter. The rapid spread of information via social media, often unfiltered and unchecked, necessitates regulatory intervention. The emphasis was on fostering transparent communication with regulators, as misinformation serves no one's interest. While the rapidity of reactions to information isn't a new phenomenon, the anonymity and reach offered by social media platforms introduce an unprecedented element of chaos.
Challenges and Lessons Learned
Another panelist highlighted the gap between evolving market risks and regulatory adaptations. In the context of SVB, the oversight wasn't in gauging market fluctuations but in overlooking the illiquid risk accumulating on their balance sheets. The bank's aggressive risk-taking stance in the pursuit of profits was evident. The discourse then shifted to future protective measures. While bolstering capital reserves is essential for enhancing systemic resilience, lapses in both internal governance and external oversight are equally to blame. The need for transparency, especially in sharing internal projections with regulators, was underscored. Regulators, despite their influence, aren't omnipotent. The onus is on institutions to devise strategies to manage crises, avert panic, and champion transparency. Rebuilding eroded trust is a formidable challenge.
The Role of Data and Governance
The emphasis on proactive governance reviews and the indispensability of investments in this domain was a recurring theme. Proactive identification of vulnerabilities, albeit costly, is preferable to institutional failure. Auditing mechanisms, like the s166 in the UK, offer insights into rectifying reporting inaccuracies and enhancing regulatory oversight. Such tools guide banks on improvement trajectories.
The panelists also stressed the importance of clarity, both internally and in interactions with regulators. Regulatory reporting's precision and transparency hinge on well-defined roles, a controlled environment, and structured reporting management. The overarching sentiment was the urgency to develop and implement a harmonized framework across different jurisdictions and to dismantle internal siloes. Collaboration emerged as a recurrent theme, underscoring its criticality.
The Future Landscape of Banking
The banking landscape is currently undergoing significant changes due to a plethora of regulatory shifts. The panelists identified the introduction of global standards, such as standardizing definitions, as an immediate priority. Surprisingly, even a decade and a half post the financial crises, such standardizations remain elusive. With the volume of reporting on an upward trajectory, banks must harness technology and scalable solutions. The quality of data is paramount; inaccuracies can have catastrophic repercussions. Collaborative efforts across institutions can distribute the cost of change. Investments in technology and data are non-negotiable for banks, especially given the substantial initial costs of establishing utilities. Regulatory encouragement can catalyse such investments. The panel concluded with a call for ingraining accountability into the very DNA of financial institutions and upholding governance principles.