BoE on alert for further crises

The governor of the Bank of England, Andrew Bailey, has told MPs that the bank is on “heightened” alert for potential turmoil in the banking sector. Bailey confirmed that recent problems facing lenders had not caused stress in the UK banking system but added that officials have been attempting to calm investors since the failures of Silicon Valley Bank and Signature Bank. The collapse of these banks has led to concerns about the stability of other lenders, and nerves among investors have led to sharp falls in banking shares around the world. Bailey assured MPs that the Bank of England would remain vigilant during this period of heightened alertness and tension.

The collapse of Silicon Valley Bank was the biggest US banking failure since the 2008 financial crisis, with US regulators stepping in to protect customers, and the bank’s UK arm being rescued by HSBC. The incident has generated heated debate in the US about whether SVB was subject to appropriate supervision and whether officials responded properly to its collapse. Financial regulators in the US called the failure “a textbook case of mismanagement” and cast blame on SVB leaders for failing to adjust strategies despite warnings from officials. However, senators questioned the regulators’ oversight failures.

UK banking officials admitted to MPs that the speed of SVB’s collapse had taken them by surprise and that banking rules may need updating. Sam Woods, the chief executive of the Prudential Regulation Authority, noted that SVB UK saw about a third of its deposits – £3bn – withdrawn on one day. He suggested that stress tests applied to UK banks may need to be looked at, given how quickly deposits can be withdrawn electronically. Bailey acknowledged that the collapse of SVB was the fastest collapse from health to death since the UK’s Barings Bank failed in 1995.

Bailey stated that while rising interest rates were an issue for US banks, they were less likely to affect UK lenders because they were regulated differently. He added that the UK was not in a position similar to the 2008 global financial crisis. The head of the Federal Deposit Insurance Corp, Michael Gruenberg, expressed support for strengthening banking rules, but stricter regulation is opposed by Republicans.