Regulatory Watch May Update: What Banks Should Keep an Eye On

The collapse of SVB, Signature Bank, and First Republic has raised concerns about the stability of the financial services industry in the United States and across the world.  While President Biden has continued to assure Americans that the banking system is “safe,” he is also committed to implementing stiffer banking regulations. He said, "I'm going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure will happen again, and to protect American jobs as a small business"

And those stiffer regulations may not be limited to the US, as concerns have risen in the UK and Canada as well.

The Future of the Dodd-Frank Act

The Dodd-Frank Act introduced new banking regulations after the 2008 global financial crisis, but in 2018 Republicans pushed the rollback of some of the regulations. One change was increasing the size of the banks subject to stricter regulation from $50 billion to $250 billion.

Given that SVB had $209 billion in assets, the March events could have played out differently if the Dodd-Frank changes were not implemented and that is top-of-mind for many politicians and regulators.

GAO Report and Senate Hearings in the US Fuel Regulation Debate

Last week, the U.S. Government Accountability Office released its preliminary findings on the SVB and Signature Bank collapse. Not surprisingly, they raised concerns that "regulators did not escalate supervisory actions in the time to prevent the failures," which is a clear signal that increased regulations are coming.

The SVB failure continues to take center stage as the SVB and Signature executives testified in front of the Senate Banking Committee this week. Former Silicon Bank CEO Greg Becker deflected blame and said the bank did not fail to manage interest rate risk. The high-visibility finger-pointing probably isn't easing anyone's concerns and could trigger more significant regulations.

The Federal Reserve is expected to announce its plan to increase capital rules this summer.  Michael Barr, Federal Reserve Vice Chair, said they were “carefully considering” capital rules for regional banks with $100 billion or more in assets.

US Bank Collapses Could Impact Bank Requirements Globally

The SVB collapse directly impact the UK and tech companies in the UK that banked at the UK branch of SVB. Chancellor Jeremy Hunt was already considering changes to the ring-fencing regulations in the UK as part of the post-Brexit reforms. However, the SVB collapse introduces a new challenge of how the UK can provide regulatory oversight that balances providing banking services for tech companies while mitigating risk for consumers. And these decisions need to be made in a difficult interest-rate environment.

Canada already has a more highly regulated banking environment than the US with stress tests required for all banks regardless of size and a single regulatory entity (versus multiple regulators in the US). This has resulted in zero bank failures in Canada since 2001, compared to 562 in the US.

Yet, despite this stability, 56% of Canadians said they were concerned about a possible bank failure and Bank of Canada deputy governor Toni Gravelle said the central bank is “ready to act” if needed, implying they would be open to new requirements or regulations.  

How Can Banks Prepare for Impending Regulation Changes?

FDIC Chairman Martin Gruenberg probably provided a good clue when he stated, "The core issue was the failure on the part of examiners to compel compliance when issues were identified."

All banks need to be prepared for the increased scrutiny and transparency that regulators are going to require to “compel compliance,” but larger regional banks seem to be squarely in the crosshairs of increased regulations. Bank-wide visibility across all models will be crucial. For many banks that’s difficult because intellectual capital is dispersed on siloed, uncontrolled spreadsheets.  

While banks understand the risk of Excel-based models, it’s been extremely difficult to move away from them. Cloud-based platforms provide clear benefits in terms of scalability, control, and trackability, but they also require specialized programming skills and long turnaround times to code models that impede agility and speed-to-market.

Coherent Spark enables banks to have the best of both worlds. By quickly converting complex spreadsheets into cloud-based workflows, analysts can continue to use Excel while Spark eliminates Excel limitations.

Get Ahead of Bank Regulations with Coherent Spark

Turn your spreadsheet models into enterprise-wide code in minutes. Your team can build, model, and test directly in the Coherent platform with regression and analytics tools that are completely traceable, or connect workflows to a broader, cloud-based integrated solution. Request a demo.