New report explores what the 2023 banking turmoil revealed about financial regulation and highlights the unfinished agenda of banking sector reforms
The turmoil reignited concerns about the stability of the global financial system, underscoring critical issues surrounding deposit behavior and interest-rate risks.
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In March 2023, the U.S. experienced its biggest banking failure since the 2008 global financial crisis. Several banks — including a major lender in the tech industry and a bank of global financial significance — crashed, as depositors hastily withdrew their savings, putting a strain on the already weak financial institutions dealing with soaring interest rates. Hundreds of billions of dollars were pumped into the system by lenders of last resort — central banks — and the banking industry’s strongest players.
The turmoil reignited concerns about the stability of the global financial system, underscoring critical issues surrounding deposit behavior and interest-rate risks. It highlighted the fragility of relying heavily on uninsured deposits, particularly in an era of rapid withdrawals through digital banking.Â
Most importantly, it put to test the regulations put in place after the 2008 crisis: Were they effective in this new era of banking? Have digital banking and social media fundamentally changed the landscape? And what role has monetary policy played?Â
A new report led by IESE Prof. Xavier Vives examines these critical questions, as well as exploring how banking regulation can prepare for future crises. The report, titled Banking Turmoil and Regulatory Reform, calls for proactive measures to safeguard financial stability, to mitigate systemic risks, and to ensure the robustness of banking sector regulations and supervisory practices in light of recent crises.Â
The sixth in a series by IESE’s Banking Initiative, the report brings together academics, regulators and the private sector — including co-authors Viral Acharya from New York University Stern School of Business, Elena Carletti from Bocconi University and Fernando Restoy from the Bank for International Settlements. It’s published by the U.K.-based Centre for Economic Policy Research (CEPR).
[This article has been reproduced with permission from IESE Business School. www.iese.edu/ Views expressed are personal.]