# BoE’s Bailey says bank reforms worked but questions about liquidity buffers
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-04-13
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: BoE's Bailey: Bank Reforms Worked But Questions On
Meta Description: Bank of England Governor Andrew Bailey examines the effectiveness of post-crisis bank reforms amidst questions about liquidity buffers.
URL: https://financedigest.com/boes-bailey-says-bank-reforms-worked-but-questions-about-liquidity-buffershtml

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# BoE’s Bailey says bank reforms worked but questions about liquidity buffers

By Huw Jones

(Reuters) -Bank of England Governor Andrew Bailey said bank reforms enacted after the global financial crisis of 2007-09 worked during the recent banking turmoil, but there were questions about whether banks should set aside bigger cash buffers in future.

The failure last month of Silicon Valley Bank and two other lenders in the United States, along with the forced takeover of Credit Suisse by UBS sent banking shares globally into a tailspin, but markets have since calmed.

Regulators have said the episode represented the first big test of the tougher [banking rules that were brought in after the global financial crisis](https://www.financedigest.com/how-the-2023-banking-crisis-unfolded.html "How the 2023 banking crisis unfolded"), but debate is emerging over whether the rules need tweaking.

The post-crisis reforms to [bank regulation have worked,” Bailey](https://www.financedigest.com/boes-bailey-says-rate-setters-can-put-inflation-before-bank-worries.html "BoE’s Bailey says rate-setters can put inflation before bank worries") said in a speech on Wednesday to the Institute of International Finance in Washington where he is attending International Monetary Fund meetings.

[“Today I do not believe we face a systemic banking](https://www.financedigest.com/stress-testing-why-did-my-bank-go-bust-today.html "STRESS-TESTING – WHY DID MY BANK GO BUST TODAY? ") crisis. When I look at the UK banks, they are well capitalised, liquid and able to serve their [customers and support](https://www.financedigest.com/make-it-personal-how-banks-can-better-support-sme-customers-in-q4.html "Make it personal: How banks can better support SME customers in Q4") the economy.

Bailey, however, echoed calls from his predecessor Mark Carney by saying there might be questions over the size of [liquidity buffers required of banks](https://www.financedigest.com/strategies-banks-use-to-manage-liquidity-risk.html "Strategies Banks Use to Manage Liquidity Risk") in order to tide them over short-term shocks.

We can’t assume that, going forwards, the [current answer on the total size of liquidity](https://www.financedigest.com/liquid-polybutadiene-market-quantitative-market-analysis-current-and-future-trends.html "Liquid Polybutadiene Market Quantitative Market Analysis, Current And Future Trends") protection is the correct one,” he said.

We saw with Silicon Valley [Bank that with the technology](https://www.financedigest.com/6-technology-trends-banking-2019.html "6 Technology Trends for Banking in 2019") we have today – both in terms of communication and speed of access to bank account – runs can go further much more quickly. This must beg the question of what are appropriate and desired liquidity buffers that create the time needed to take action to [solve the problem.”](https://www.financedigest.com/british-start-up-reveals-the-secret-to-solving-the-problem-of-identity-fraud.html "British start up reveals the secret to solving the problem of identity fraud")

The speed at which depositors can withdraw [cash with a click on their smartphone has become a factor for regulators](https://www.financedigest.com/uk-energy-regulator-drops-plan-to-ring-fence-customers-cash.html "UK energy regulator drops plan to ring fence customers’ cash").

Data from the European Central Bank on Wednesday showed a slight weakening in liquidity buffers at [banks it regulates](https://www.financedigest.com/exclusive-u-s-regulator-seeks-sale-of-silicon-valley-bank-signature-bank-portfolios-sources.html "Exclusive-U.S. regulator seeks sale of Silicon Valley Bank, Signature Bank portfolios-sources"), though they are still well above minimum requirements.

## NO HASTY CONCLUSIONS

Speaking at the same event, Pablo Hernandez de Cos, chair of the Basel Committee, whose members include the BoE and which sets global bank capital and liquidity standards, said regulators should not hastily jump to conclusions about the [causes of banking](https://www.financedigest.com/explainer-what-are-credit-default-swaps-and-why-are-they-causing-trouble-for-europes-banks.html "Explainer-What are credit default swaps and why are they causing trouble for Europe’s banks?") turmoil or what reforms may be needed.

[Banks’ holdings](https://www.financedigest.com/bank-of-canada-seen-on-hold-even-as-economy-accelerates.html "Bank of Canada seen on hold even as economy accelerates") of liquidity have more than doubled since the global financial crisis, helping to contain fallout from the recent banking turmoil, de Cos said.

We should not hastily jump to conclusions, nor should we [close any doors](https://www.financedigest.com/banking-stability-worries-go-behind-closed-doors-at-imf-world-bank-meetings.html "Banking stability worries go behind closed doors at IMF-World Bank meetings"). Nevertheless, once our stocktake is completed, remedial actions should be taken if deemed necessary,” de Cos said.

Board members at some banks, however, have questions to answer about how they were monitoring risks on their books, added de Cos, who is also [governor of the Bank](https://www.financedigest.com/bank-of-england-removes-paintings-of-governors-linked-to-slave-trade.html "Bank of England removes paintings of governors linked to slave trade") of Spain.

Separately, a [top official](https://www.financedigest.com/us-treasurys-top-international-official-heads-to-europe-asia-for-talks-on-economy.html "US Treasury’s top international official heads to Europe, Asia for talks on economy") at the U.S. Federal Deposit Insurance Corporation said on Wednesday that management [failures lay behind the demise of Silicon Valley Bank](https://www.financedigest.com/bank-of-england-fines-former-tsb-executive-over-2018-it-failure.html "Bank of England fines former TSB executive over 2018 IT failure"), which stricter banking rules could not have prevented.

Bailey said future size and make-up of banks’ liquidity buffers would influence how far central [banks go in reducing the size of the bond holdings they have acquired since the financial](https://www.financedigest.com/financial-crime-is-the-chink-in-the-banks-armour.html "Financial crime is the chink in the banks’ armour") crisis and which grew further during the coronavirus pandemic.

We don’t [know yet where central bank balance sheet reduction will need](https://www.financedigest.com/4-things-you-need-to-know-about-mortgages.html "4 Things you Need to Know About Mortgages") to stop in terms of the necessary level of reserves,” Bailey said.

(Reporting by Huw Jones, editing by William Schomberg and Toby Chopra)


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