2023 CLOSING COMMENTS | Governance of Non-Financial Risk in an Age of Global Discord

Recent failures in banking highlight the continuing fault lines, to put it lightly, in the governance of financial institutions, and among their regulatory and other overseers. Quite apart from the immediate issues, this raises the prospect that business is ill-equipped to navigate the extraordinary geopolitical fractures they are likely to face over the coming years and decades.

Starting with the recent humdrum failures, the most striking thing is the extraordinary passivity of those involved until the tragically familiar illiquidity vortex engulfed them. In the case of Silicon Valley Bank, directors and supervisors seem to have been frozen in the face of growing latent losses from plain vanilla interest-rate exposures, and over reliance on short-term funding from uninsured depositors. As an outsider, one cannot know, but in their effects they put on a good impersonation of not understanding the basics of banking and its timeless fragilities. In the case of Credit Suisse, a much more complex outfit, liquidity tremors during autumn last year were not enough to prompt action to rein in their mismatches and de-lever their book, including in wealth management, and to ensure there was enough free collateral to cover an all-out run in a number of international currencies.