Regional Banks Could Face Global Regulations Following Crisis

IMF, International Monetary Fund

Smaller banks could face tougher global regulations in the wake of last month’s banking crisis.

That’s according to a report Monday (April 17) by the Financial Times, citing comments from policymakers at the IMF meetings in Washington, D.C.

The report notes that The Basel Committee on Banking Supervision, which established global standards, had pledged in March to gauge the need for new rules following the collapse of Silicon Valley Bank (SVB), a regional lender that did business whose demise kicked off a worldwide banking crisis.

“SVB has shown you don’t have to be internationally active to be able to generate cross-border spillovers,” one senior policymaker said.

While there is no time frame for the changes, the report says regulators are considering making mid-sized banks like SVB adhere to Basel requirements for liquidity and capital.

All banks in Europe are required to comply with these rules, though in the U.S., those regulations apply to just “internationally active” lenders, a category that includes just the country’s banking giants.

However, regulators tell the FT that the “internationally active” idea was obsolete and should be applied to banks that had “international relevance” or the potential to shake up the larger financial system.

These comments follow a letter last week from Klaas Knot, chair of the Financial Stability Board, arguing that the banking crisis spotlights 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,” Knot wrote in the letter, addressed to the finance ministers and central banks of the G20 countries.

“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 said the FSB is working with the Basel Committee and other standard-setting organizations to “comprehensively draw out these lessons.”

PYMNTS spoke earlier this month with Amias Gerety, partner at QED Investors, about the divide between big and small banks. He argued that “it shouldn’t be the policy of the United States that we only want deposits in the 25 largest banks.”

“I hope the policy debate is less about finger pointing and more about what type of banking system we want, and the policies we need to get there,” Gerety told PYMNTS’ Karen Webster.

He added that while there has been a call for universal deposit insurance, smaller banks do not want the insurance cap to be lifted beyond the traditional $250,000 limit.

“Smaller banks are 95% funded with deposits,” said Gerety, “so it’s difficult for them to get to a mindset where deposits are, fundamentally, public money.  They don’t want to feel they are agents of the state.”