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The turmoil has exposed high-level failures at banks, the global watchdog says

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By Huw Jones

LONDON (RockedBuzz via Reuters) – This year’s banking turmoil has shown that some boards and senior executives have failed in their most basic responsibilities and further regulatory guidance may be needed, a global watchdog said.

A handful of banks with more than $1 trillion in assets, including Credit Suisse and Silicon Valley Bank, collapsed or were bailed out between March and May this year, sending shockwaves through global markets.

Pablo Hernandez de Cos, president of the Basel Committee, said Thursday that the turmoil highlighted many shortcomings. The Basel Committee writes the capital rules for banks, determining how much they must set aside in case they get into trouble.

“It is of deep concern to see that, in 2023, the boards and senior management of some banks have failed in their most basic responsibilities to oversee and challenge a bank’s strategy and risk tolerance,” de So in a speech.

“More clearly needs to be done to uphold these responsibilities.”

The committee is finalizing a stocktaking to see what lessons can be learned, de Cos said.

Most of the banks that failed during the crisis were not subject to Basel standards, said de Cos, who is also governor of the Bank of Spain.

He added that banking regulators need to develop in-depth knowledge of the viability and sustainability of banks’ business models.

There is broad consensus to prioritize further work to strengthen supervisory effectiveness, including identifying issues that may merit further global guidance, he said.

Further analysis will be carried out on how bank liquidity rules have worked, whether tighter capital rules are needed to cover risks arising from interest rate movements, how banks manage large-scale deposit withdrawals and how instruments of capital are devalued in the event of a crisis.

Basel could also consider how national regulators decide to exempt a bank with cross-border features from the committee’s standards, de Cos said.

(Reporting by Huw Jones; Editing by Alexander Smith)

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