Bank of England warns of banking mistakes in 2022
2023.01.10 08:52
Bank of England warns of banking mistakes in 2022
By Ray Johnson
Budrigannews.com – Regulators at the Bank of England stated on Tuesday that banks still need to improve their risk management and learn from the various crises that rocked markets in 2022.
The Prudential Regulation Authority (PRA) of the Bank of England wrote to bank CEOs in letters that the market’s reaction to Russia’s invasion of Ukraine and the turmoil in the nickel and British government bond markets highlighted bank risk deficiencies.
According to the regulator, the flaws occurred despite the PRA’s request to businesses the year prior to the collapse of Archegos Capital Management, which resulted in losses totaling $10 billion for global banks.
“However, despite regular messaging from the PRA on the subject, these events demonstrated that firms continue to unintentionally accrue large and concentrated exposures to single counterparties, without fully understanding the risks that could arise,” the letters stated. “However, despite regular messaging from the PRA on the subject,” the letter continued.
“In 2023, businesses must ensure that the lessons learned from previous crises are fully and definitively absorbed across the first and second lines of defense.”
In addition to outlining the PRA’s supervisory priorities for banks in 2023, the letters urged domestic lenders to ensure that they were able to support households and businesses in the face of a challenging global economic outlook.
The PRA stated in a separate letter to insurers that the collapse of pension fund so-called liability-driven investment strategies last year had highlighted liquidity risk framework gaps that required additional work.
In addition, the PRA stated that it would collaborate with the insurance industry to better manage the risks and warned insurers that their management of exposures to non-natural catastrophes like cyberattacks remained “immature” and could result in significant losses.
The Eurozone’s chief supervisor, the European Central Bank, issued similar cautious warnings in response to the Bank of England’s warnings.
In reference to the possibility of loan losses, it stated in December that banks must prepare for the effects of higher interest rates.
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The ECB warned banks about the risk of banks’ interest rate-linked derivatives and urged them to prepare for the wider consequences of rising borrowing costs, such as higher savings withdrawals.
