Regulators around the world should subject banks to tougher stress tests and step up scrutiny to minimise vulnerabilities in the sector, according to the International Monetary Fund.
The international organisation recommended that the financial watchdogs bolster their risk assessments, increase examinations and ensure that frameworks are in place to manage crises. Banks generally have managed the high interest-rate environment well, but lenders are facing stresses as loan demand declines and funding costs increase, according to the IMF.
The health of the banking industry was briefly called into question earlier this year after the collapses of several lenders, including Silicon Valley Bank in the US and Credit Suisse Group AG in Europe. In its 2023 Global Financial Stability Report, the IMF said the episodes showed how a group of weak banks can pose systemic risks.
ADVERTISEMENT
CONTINUE READING BELOW
“The failure of a few large regional banks in the United States and the takeover of a global systemically important bank (G-SIB) with the support of the authorities in Switzerland in March of 2023 are a reminder of how fast-paced global increases in interest rates can affect the global banking system,” according to the report released Tuesday.
Regulators should make stress tests “more stringent and granular” for banks, including smaller ones, the IMF said. They should also tighten standards for capital that needs to be held against interest-rate risk, the organization said.
US officials have said they are considering changes to the Federal Reserve’s annual stress tests, and have proposed a significant boost to capital requirements for Wall Street’s biggest banks. The bid to increase capital mandates is drawing fierce pushback from the industry.
In Tuesday’s report, the IMF also called on central banks to “remain determined in their fight against inflation until there is tangible evidence of inflation moving sustainably toward targets.”
© 2023 Bloomberg
