Date: 2024-10-31 Page is: DBtxt003.php txt00026614
US BANKING
IS US BANKING 'FIT FOR PURPOSE'?
Reuters: Banks should increase use of 'discount window' to prevent crises -expert group
IS US BANKING 'FIT FOR PURPOSE'?
Reuters: Banks should increase use of 'discount window' to prevent crises -expert group
A man uses an ATM machine at a branch of the First Republic Bank in New York, U.S. April 28, 2023. REUTERS/Eduardo Munoz/File Photo
Original article:
Peter Burgess COMMENTARY
At some level 'banking' is very simple.
But over the years it has embraced an exotic structure that serves more to confuse and hide than to elucoidate!
When I was growing up, my father was a schoolmaster, but all my uncles were provincial bank managers in the UK. They were solid citizens in their communities and not at all 'creative'. By contrast, when I was older and training to be an accountant in London, I found a different breed of people who were 'bankers' and 'investors' in the 'City'.
More than 50 years have passed and the world of 'high finance' is very different in the 2020s than it was in the 1960s! But is it 'better'.
I see a lot of 'better' in the modern world. The fiels od technology, medical knowledge and business productivity more progressed in an impressive way. Some people have far better lives now than one or two generations ago.
Sadly ... the good news about progress does not apply to everyone. There are problems with the distribution of 'better' in both poor countries and rich countries. In my view, this is a choice that the people with power and influence have chosen ... and in my view this has done huge damage to quality of life for the majority of people on the planet, and will most likely acceierate into the future unless there is a rethink of priorities and changes in the way decisions are being made.
My view is that the issues referred to in the following article have not be solved in a meaningful way, but merely hidden from sight!
Peter Burgess
Reporting by Douglas Gillison; editing by Michelle Price, Nick Zieminski and Chizu Nomiyama
January 9, 2024 12:02 PM EST
Jan 9 (Reuters) - Commercial banks should prepare to borrow more readily from central banks to limit contagion in times of stress and discourage runs by depositors, an expert regulatory panel said on Tuesday in a report about last year's banking crisis.
The Group of 30 (G30), an international forum of central bankers, economists and private financiers, also said improving accounting standards, more comprehensive stress testing and better supervision, would help prevent future bank failures.
Last year's collapses of Silicon Valley Bank, Signature Bank (SBNY.PK), opens new tab, First Republic Bank (FRCB.PK), opens new tab and Credit Suisse constituted the worst financial crisis since 2007-2009. The U.S. banks all collapsed following depositor runs.
However, reforms proposed so far have under-emphasized the importance of 'lender of last resort' or central bank 'discount window' lending in limiting contagion, according to the report, which was chaired by former New York Federal Reserve Bank President William Dudley.
Borrowing from central banks continues to carry a stigma as a sign of weakness and can require collateral that banks don't immediately have handy, meaning the system goes unused, the report said. Reuters reported last year that many small banks are not set up to borrow from the Fed's discount window.
Fixing central bank lending systems is 'the most important, most feasible and lowest-cost reform' to contain panic and discourage depositor runs, the group said. Banks should have enough collateral on hand to cover 'all runnable liabilities' via discount window borrowing, it added.
The position echoed guidance issued last year by U.S. regulators. However, Stanford University Finance Professor Darrell Duffie, a co-author of the report, said the proposal went 'a significant step furthe'' than U.S. officials' call for simply including the discount window in contingency planning.
The G30 proposal says 'you must have immediate access to the discount window by pre-positioning collateral there,' he told reporters. 'It's already pre-arranged under this proposal.'
The report comes as the U.S. banking industry battles proposed reforms to capital regulations which officials say should also help address some of the concerns from last year's bank failures. U.S. regulators have also intensified scrutiny of risk management and said they will modify stress tests.
Meanwhile, Swiss authorities are seeking greater regulatory muscle, including the power to levy fines, and have considered anti-run measures. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here.
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