FSB Head Calls for Stricter Rules Following Bank Runs

Klaas Knot

A top world financial watchdog wants financial regulators to learn from the recent banking crisis.

In a letter Wednesday (April 12) to the finance ministers and central banks of the G20 nations, Klaas Knot, chair of the Financial Stability Board, said the recent turmoil in the banking industry underscores the need for greater action.

“Events in the banking sector over the last month have been the latest in a sequence of shocks that have buffeted the global financial system in recent years,” wrote Knot, who is also head of the Dutch central bank.

“But, unlike most other recent shocks, this latest episode had its origins within the financial system,” he added. “So the need for financial authorities to learn lessons, and act upon them, is all the greater.”

Knot writes that the speed of last month’s failures of Silicon Valley Bank and Signature Bank, the nature of their vulnerabilities and the way the market reacted all offer crucial lessons for financial authorities.

He said the FSB is collaborating with the Basel Committee on Banking Supervision and other standard-setting groups to “comprehensively draw out these lessons” and set priorities for work in the future.

“The full, timely and consistent implementation of international financial standards remains key to bolstering global financial stability,” Knot said.

Knot’s call to action comes as officials continue to probe last month’s banking crisis. Earlier this week, a pair of Democratic lawmakers asked whether executives at companies who deposited at SVB got personal perks from the bank.

In a letter to the companies, Sen. Elizabeth Warren (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) inquired about recent news reports that executives received “coddling” and “white-glove treatment” from the now-failed bank.

“Silicon Valley Bank’s unusually cozy relationship with its clients increased the threat of contagion when the bank went under,” Warren said in a press release. “The American people deserve to know how these mutual backscratching arrangements developed, who benefited from them, and what role they played in Silicon Valley Bank’s failure.”

Meanwhile, the banking crises added to economic pressure already caused by the pandemic, hurting economic growth, the International Monetary Fund (IMF) said this week as it lowered its baseline projection for global output growth.

“The world economy is still recovering from the unprecedented upheavals of the last three years, and the recent banking turmoil has increased uncertainties,” IMF Chief Economist Pierre-Olivier Gourinchas said in a news release.

The IMF’s World Economic Outlook, released Tuesday, now forecasts global growth to drop from 3.4% in 2022 to 2.8% this year and then climb to 3.0% in 2024.