Global Regulators React to Banking Sector Turbulence

Recent events have not made regulators more conservative, according to Andrew Bailey, Governor of the Bank of England. He stated that the post-crisis reforms to bank regulation have worked, and the UK banks are well-capitalized, liquid, and able to serve their customers and support the economy. Therefore, the sentiment is that the UK does not currently need to make changes to its crisis management measures, except for potentially improving deposit protection measures. One specific area of reform being considered in the UK is the ring-fencing regime. This regime was introduced after the 2008-09 financial crisis to insulate retail arms of larger banks from contagion risk. Banks with retail deposits of £25 billion or more are required to hold extra capital to bolster their retail operations, and their retail arms are restricted from certain activities. An independent review of the regime suggested improvements, such as increasing the deposit threshold, reviewing restricted activities, and removing geographical restrictions. The UK government plans to consult on these reforms in mid-2023 and intends to lay legislation to make these changes later in 2023. Additionally, the government published a Call for Evidence to consider the longer-term need for the ring-fencing regime and how it can align with the resolution regime, which may offer a more comprehensive solution for banks in crisis over time. In the US, regulators are using their existing authority to increase regulation of banks in the $100 billion to $700 billion asset range. They will also tighten day-to-day supervision. Stakeholders should expect heightened requirements for capital, liquidity, and resolution preparedness. The Federal Reserve Board is conducting a holistic review of capital requirements as part of its preparations to implement the remaining aspects of the new Basel Capital Accord. Overall, regulators in the US, UK, and Europe are considering how to calibrate their supervisory regimes in response to recent banking sector turbulence. The focus is on enhancing regulatory measures, improving crisis management, and ensuring the stability and resilience of the banking system. I hope this expanded summary provides a comprehensive overview of the main points in the report. Let me know if you have any further questions!