🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

Bank of England addresses tech-induced bank run risks and financial system stability

Published 2023/11/03, 19:32
SBNY
-
FRCB
-
SICPQ
-

In a recent speech at King's College London, Andrew Hauser of the Bank of England (BoE) highlighted three major challenges for central banks in the current financial climate. These include mitigating the risk of technology-induced bank runs, determining the suitable size of central bank balance sheets amid inflation target reinstatement, and maintaining financial system stability in the face of frequent systemic liquidity shocks.

These concerns come on the back of events earlier this year where rapid deposit runs were experienced at Silvergate Capital (OTC:SICP), Silicon Valley Bank (OTC:SIVBQ), Signature Bank (OTC:SBNY), and First Republic Bank (OTC:FRCB). The larger and faster deposit runs, facilitated by advancements in online banking services, underscored the need for banks to maintain substantial financial buffers.

In response to these challenges, Hauser stated that the BoE has increased its reserves beyond pre-2008 levels to ensure micro- and macro-prudential stability and monetary control. This move is crucial as central bank reserves serve as the ultimate form of settlement.

Hauser also emphasized the importance of examining central bank balance sheets following 15 years of extensive expansion due to emergency bond-buying. Maintaining appropriate liquidity insurance is seen as vital in this regard. Furthermore, the BoE is augmenting alternative liquidity sources and revising its toolkit to incentivize better liquidity management within firms.

In addition to banking institutions, Hauser stressed the need to ensure stability across non-bank market finance entities such as hedge funds. This is particularly important considering the frequency of systemic liquidity shocks experienced in recent times.

In related news, First Republic Bank is planning a 25% workforce cut after securing $30 billion in deposits from 11 banks following a bank run. This development further illustrates the significant changes occurring within the banking sector as it navigates through technological advancements and evolving financial landscapes.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.