LONDON, Jan 10 (Reuters) – Banks nonetheless want to enhance their danger administration and be taught the teachings from varied crises that rocked markets in 2022, regulators on the Financial institution of England stated on Tuesday.
The market response to Russia’s invasion of Ukraine and turmoil in nickel and British authorities bond markets highlighted danger deficiencies at banks, the BoE’s Prudential Regulation Authority (PRA) wrote in letters to financial institution CEOs.
The shortcomings got here regardless of the PRA asking companies to assessment their danger exposures after the collapse of Archegos Capital Administration – which saddled world banks with $10 billion of losses – the earlier 12 months, the regulator stated.
“Nonetheless, regardless of common messaging from the PRA on the topic, these occasions demonstrated that companies proceed to unintentionally accrue massive and concentrated exposures to single counterparties, with out absolutely understanding the dangers that would come up,” the letters stated.
“In 2023, companies should be sure that these classes from previous crises are definitively realized in full, and totally embedded throughout the primary and second strains of defence.”
The letters outlined the PRA’s supervisory priorities for banks for 2023, and likewise known as on home lenders to make sure they have been in a position to proceed to assist companies and households and face up to a difficult world financial outlook.
In a separate letter to insurers, the PRA stated the blow-up in so-called liability-driven funding methods for pension funds final 12 months had highlighted gaps in companies’ liquidity danger frameworks that will require additional work.
The PRA additionally warned insurers that their administration of exposures to non-natural catastrophes equivalent to cyberattacks remained “immature” and will danger outsized losses, including that it could work with the business to raised handle the dangers.
The warnings from the Financial institution of England echo a equally cautious message from the euro zone’s chief supervisor, the European Central Financial institution.
It stated final December banks want to arrange for the influence of upper rates of interest, pointing to the specter of mortgage losses.
The ECB urged banks to arrange for the broader influence of rising borrowing prices, equivalent to greater withdrawals of financial savings, and it singled out the chance of banks’ derivatives linked to rates of interest.
Reporting by Iain Withers, Extra reporting by John O’Donnell; Modifying by Bernadette Baum
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