Earlier this month, the US Government Accountability Office (GAO) published a post-mortem report on the 2023 bank failures, identifying shortcomings in regulators' supervisory efforts and escalation.
"In the 5 years before 2023, regulators identified liquidity and risk-management deficiencies at SVB and Signature Bank," the GAO writes. “However, both banks were slow to mitigate problems regulators identified and regulators did not escalate supervisory actions in a timely fashion, which could have helped to prevent the failures.”
The GAO provides several recommendations, including that Congress consider reforms requiring "forceful regulatory actions tied to unsafe banking practices" and that regulators revise their procedures for escalating supervisory actions. However, notably, the report includes little to no discussion of the culture, governance, and other risk management concerns that are widely considered to have been the root cause of the bank failures.
In an op-ed published late last year in The Banker, Stuart Mackintosh, Executive Director of the Group of Thirty, and Starling Founder & CEO Stephen Scott argued that reforms prompted by the banking turmoil in early 2023 should focus on the development of tools for supervisors to assess these non-financial matters.
"As we seek to draw lessons from this past spring and to set priorities to avoid future turmoil," they wrote, "we should consider how supervisory technologies might position us to exercise informed judgement from the front foot by equipping us with supervisory and risk management red flags." ▸ Read More
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