Posted Jan 10, 2023, 5:03 PM
by Iain Withers
LONDON, Jan 10 (Reuters) – Banks still need to improve their risk management and learn from the various crises that rocked markets last year, the Bank of England’s watchdog said on Tuesday. ), the Prudential Regulatory Authority (PRA).
Market reaction to Russia’s invasion of Ukraine and turmoil in nickel and UK government bond markets have highlighted shortcomings in terms of risk management for banks, writes the Authority of the BoE’s prudential regulation in letters addressed to bank managers.
These shortcomings materialized as the PRA asked companies to review their risk exposure after the bankruptcy of Archegos Capital Management which in 2021 caused losses estimated at ten billion dollars to several large international banks.
“Despite the PRA’s regular messages on the subject, these events have demonstrated that companies continue to inadvertently accumulate large and concentrated exposures in return for undiversified collateral, without fully understanding the risks that could arise.” read in these letters.
“In 2023, businesses must ensure that the lessons of past crises are definitely learned in full, and that they are firmly entrenched in the first and second lines of defence,” adds the PRA.
The letters outline the PRA’s banking supervision priorities for this year and also urge national banks to ensure they are able to continue to support businesses and households and weather a global economic outlook. difficult.
In a separate letter to insurers, the PRA noted that the development last year of investment strategies based on pension fund liabilities had highlighted shortcomings in the event of a liquidity crisis.
The PRA also believes that the management of exposures to unnatural disasters like cyber attacks by insurers remains “immature” and can lead to excessive losses.
The new warnings from the Bank of England echo those of the European Central Bank (ECB), which last month urged banks to prepare for the impact of a rise in interest rates, at the risk of credit losses or an increase in withdrawals from savings accounts. (Report Iain Withers, with John O’Donnell; French version Claude Chendjou, edited by Blandine Hénault)