The founding father of Britain’s current system of banking regulation has raised concerns about the exception granted to HSBC Holdings Plc when it rescued the UK arm of Silicon Valley Bank.
(Bloomberg) — The founding father of Britain’s current system of banking regulation has raised concerns about the exception granted to HSBC Holdings Plc when it rescued the UK arm of Silicon Valley Bank.
The comments from John Vickers – who led the government’s independent commission that proposed so-called ring-fencing in the UK – relate to rules forcing banks to separate their retail and investment banking activities put in place as one of the key lessons of the global financial crisis.
HSBC was given a waiver on some rules that stop complicated corporate customers being housed within ring-fenced banks. That concession from regulators helped get the deal over the line, enabling customers of the institution to keep trading despite the crisis that engulfed its parent.
Vickers said it’s a “bad idea to have a hole in the fence” and that the waiver is not how the rules are “supposed to operate.”
“I was concerned by that, and I don’t feel we have yet had a full explanation of why it happened,” Vickers said in an interview in Glasgow where he was attending a conference. “Maybe it was necessary for some reasons I don’t yet understand, but maybe not. But that is not how ring-fencing is supposed to operate.”
The former Bank of England chief economist also questioned whether bank stress tests are tough enough in the wake of the troubles at SVB and Credit Suisse.
Sam Woods, head of the Prudential Regulation Authority that oversees banks, has backed the Treasury’s decision to give the ring-fencing waiver but conceded that it could set a precedent.
“For what it is worth, I think that that was a good call,” Woods told a Parliamentary hearing last week. “I can see an argument being made that because that little hole was made, everyone has to have their little hole.”
Read More: Key Takeaways From BOE’s Testimony to MPs on SVB, Credit Suisse
Vickers also raised concerns about the stringency of bank stress testing in the UK and the bank resolution process that manages the failure of a lender. The Swiss National Bank said only a takeover of Credit Suisse would have been possible, warning that resolution could have triggered a global financial crisis.
“I’d also emphasize the importance of more rigorous stress tests than we have and much more transparent stress tests,” Vickers said.
“If the Swiss authorities are right when they say that resolution would not have worked, the implications for the global regulatory system are profound, because so much of it is premised on resolution working.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.