By Chris Dorrell
An influential European banking regulator has called for more powers to help it address risks in the system revealed after the collapse of Silicon Valley Bank (SVB) and Credit Suisse earlier this year.
Speaking to the Financial Times, Dominique Laboureix, chair of the European Union’s Single Resolution Board (SRB), said European authorities needed to return to the “drawing board” to make sure banks had sufficient funding in the event of a resolution.
Resolution regimes make it easier to deal with a collapsed bank without falling back on bailouts. While resolution is ongoing, banks often need liquidity to ensure customers can withdraw funds.
Laboureix suggested that the SRB, which is responsible for the resolution of the largest banks in the EU, needed more powers to ensure that the body is able to perform this role adequately.
Currently it receives funding through the Single Resolution Fund and the Eurpean Stability Mechanism. Laboureix suggested the European Central Bank should help fund banks in resolution, potentially backed by an EU government guarantee.
“We need a framework that gives us the tools to act,” he said.
“The idea is to increase our firepower because we think that under exceptional circumstances we think it would be better if we had a bit more of a solution [on liquidity],” he continued.
Laboureix joins a chorus of regulators around the world who are considering how the banking system should adapt to the problems revealed by the collapse of SVB.
Many have suggested that there ought to have been stricter rules on how much liquidity banks hold so as to reflect the speed with which money can be transferred out of accounts.
Last week, the Swiss National Bank said it was crucial to introduce measures to prevent similar problems in future. It said “the experience with Credit Suisse shows the need for a review of the too-big-to-fail framework in order to facilitate early intervention.”
Among the proposals, the SNB suggested banks could be required to prepare a minimum amount of assets to be pledged to central banks to help access emergency liquidity.
In the US, influential regulators have also suggested mid-tier banks will soon be subject to much stricter capital and liquidity requirements.
