Regulation in the global banking sector is likely to see changes in the wake of recent U.S. bank failures, says Fitch Ratings.
In a new report, the rating agency said global standards setters like the Basel Committee on Banking Supervision and the Financial Stability Board (FSB) will coordinate with other regulators to learn from the turmoil – a process that could lead to reforms in prudential and resolution frameworks.
The failure of Silicon Valley Bank “highlighted the importance of interest-rate risk management and liquidity policies in a rising rates environment,” Fitch said.
It suggested regulators may demand greater oversight of a concentration of deposits by an industry or by a particular type of client, after the SVB collapse showed how vulnerable banks with less-diversified depositors can be to runs on those deposits.
Concerns could also lead to changes in liquidity coverage requirements, it said.
At the same time, Fitch said there could be renewed calls to revise global capital requirements to better capture interest-rate risk in the banking book. And modelling on the stickiness of deposits and early loan redemptions “are likely to trigger attention from supervisors,” it said.
Fitch suggested policymakers are likely to consider raising the limits on deposit insurance.
Indeed, the latest federal budget indicated that Canadian authorities will be reviewing deposit insurance limits to help shore up confidence in the financial sector and ensure financial stability.