Shall we reconsider banking regulations? Some lessons drawn from the failure of Silicon Valley Bank and Credit Suisse

Mérő, Katalin (2023) Shall we reconsider banking regulations? Some lessons drawn from the failure of Silicon Valley Bank and Credit Suisse. ECONOMY AND FINANCE: ENGLISH-LANGUAGE EDITION OF GAZDASÁG ÉS PÉNZÜGY, 10 (2). pp. 101-119. ISSN 2415-9379

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Abstract

The paper analyses the lessons related to banking regulations to be drawn from two banking failures in March 2023, the bankruptcies of Silicon Valley Bank and Credit Suisse. The two failures have questioned whether the regulatory system established following the 2008 crisis can guarantee the stability of the banking sector. The paper analyses four areas of regulations that have come to the fore linked to the two cases. They are the issue of applying the principle of “too-big-tofail”, and the regulations related to capital structure, banking book interest rate risk and liquidity risk. It is true for all four issues that the currently valid rules are not sufficient to guarantee stability and proper crisis management if banks have to face crises never encountered before. Banking regulations providing financial stability should strive to adopt a new approach instead of further hardening the current rules. A radical reduction of leverage or the introduction of central bank digital currency could become examples of such a new approach.

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