Bank runs are still a risk to the financial system, global agency warns

financialpost.com:

Bank managers and financial authorities need to develop ways to react more quickly and effectively to bank runs, such as the one that led to the collapse of California-based Silicon Valley Bank last year, leaders of G20 countries were warned on Monday.

“The March 2023 banking turmoil reminded us that bank runs remain a risk, and that authorities still face challenges in dealing with failing banks,” Klaas Knot, chair of the Financial Stability Board, said in a letter to the international financial group’s member countries, which span North America, Europe, Asia and the Middle East.

“Episodes of market turmoil and the failure of several banks and non-banks in recent years are a stark reminder that vulnerabilities remain within the global financial system.”

Silicon Valley Bank experienced a run on deposits last year, after rising interest rates led to paper losses on its bond holdings, damaging confidence in the bank. Its collapse was followed closely by two other bank failures in the United States and by the forced sale of former European banking powerhouse Credit Suisse Group AG to UBS Group AG.

In the letter, Knot, whose job was held by former Bank Canada and Bank of England governor Mark Carney for seven years through 2018, called on G20 leaders to implement a global set of banking rules that have been unevenly adopted across North America and Europe.

“It is critical for jurisdictions to finalize and implement the agreed reforms so that the financial system can absorb rather than amplify stress,” he wrote, adding that new threats to stability continue to emerge.

“One notable example where further progress is needed is in implementing the finalized Basel III reforms in full, consistently and as soon as possible,