Banking regulators should strengthen their supervisory effectiveness in the wake of this year’s US and European bank failures, the Basel Committee on Banking Supervision has recommended. The BCBS issued a statement this week, saying its Group of Central Bank Governors and Heads of Supervision (GHOS) had “taken stock” of the lessons learnt from the failures. “It is critical that supervisors act early and effectively to identify and promptly correct weaknesses in bank practices,” it said. It said the GHOS would prioritise work to strengthen supervisory effectiveness. It also reiterated the importance of strong regulatory frameworks and bank risk management practices. In March, the US Federal Deposit Insurance Corporation was appointed receiver of Silicon Valley Bank, which had US$209 billion of assets. It was also appointed receiver of Signature Bank, a New York bank with US$110 billion of assets. The FDIC was allowed to use emergency powers to fully protect depositors in winding down SVB and Signature Bank. Shareholders lost their money and unsecured creditors took losses. SVB and other US regional banks had abnormal growth in deposits throughout the period of low interest rates and the pandemic, which their risk management functions were unable to manage properly.  Growth strategies that were focused on accumulating deposits from venture capital and crypto-related customers, together with investment strategies that were heavily concentrated in longer-dated public securities, left those banks acutely vulnerable when interest rates rose and the negative outlook for the technology sectors and crypto business materialised. A month later European bank Credit Suisse failed. It had been plagued by risk management and governance issues for years. In 2021, following the Greensill scandal, the Swiss Financial Market Supervisory Authority found that CS had seriously breached its obligations with regard to risk management and organisational structures. The Basel Committee said these events were the most significant system-wide banking stress since the financial crisis of 2008. It said: “The stress experienced by individual banks, while having largely distinct causes, triggered an assessment of the resilience of the broader banking system.” The BCBS’s emphasis on supervisory effectiveness echoes other commentaries. In June, the chair of the Supervisory Board of the European Central Bank, Andrea Enria, said: “The lessons we have learned from the recent turmoil are much more relevant for supervisors than for regulators. The key takeaways for authorities relate to the ability of supervisors to escalate issues and ensure prompt remediation by banks. “We should abandon the ambition of designing ever-more precise regulations that accurately measure all risks under any circumstances, covering even the most extreme business models and risk configurations. “That approach only results in excessive complexity, with burdensome procedures for supervisors and excessive rewards for the few institutions that have the wherewithal to game the system. Instead, we should focus our efforts on empowering supervisory teams, within a strong accountability framework.” And in May, the Financial Stability Institute said bank regulators may be called upon to adopt a more interventionist supervisory approach to assessing banks’ liquidity positions in the wake of the failure of banks that were reliant on unstable funding and rate-sensitive assets.