The Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board will coordinate with other standard-setting bodies to draw lessons from the recent banking turmoil, potentially resulting in adjustments to prudential and resolution frameworks, Fitch Ratings said in its first quarter 2023 banking regulatory developments report and associated Bank Regulation Monitor update.

Recent turbulences, the rating agency said, underlined difficulties in meeting large, unexpected, customer deposit outflows. This may drive closer oversight of deposit concentrations, particularly where there is high exposure to an industry or a type of client.

It added that supervisors may review the deposit classification (stable or non-stable) and associated outflow rates for the liquidity coverage ratio, as deposits can now be easily transferred electronically.
Silicon Valley Bank’s (SVB) failure highlighted the importance of interest-rate risk management and liquidity policies in a rising rates environment.

The BCBS was due to review interest-rate-shock scenarios used to stress interest rate risk in the banking book (IRRBB) for the outlier test and net interest income tests by 2024. There could also be renewed calls to make IRRBB part of Pillar 1 requirements.

Meanwhile, Fitch continued that banks’ modelled assumptions on deposit stickiness and early redemption of loans are likely to trigger attention from supervisors.

It said the sensitivity of bailing in depositors or holding them up in a resolution process has significantly heightened, which could plead for specific treatment in case of resolution or liquidation, as US authorities did for SVB and Signature Bank. UK authorities also called for the guaranteed portion to be raised. The International Sustainability Standards Board’s financial reporting standards are nearly finalised for June 2023 publication.

In Quarter 1, 2023, authorities in Canada, New Zealand and Switzerland issued supervisory expectations for climate-related risk-management.