Banks must guard against faster bank runs: BoE’s Hauser

Bank of England says banks must retain adequate financial buffers to avoid increasing risk of bank runs

LONDON:

Financial regulators will need to make sure that banks retain adequate financial buffers as advances in technology increase the risk of bank runs, a senior Bank of England official said on Friday.

Challenges facing central banks included “how to ensure that banks’ liquidity insurance remains appropriate as technological change increases the risk of larger and faster deposit runs, of the kind seen this spring in the US,” the BoE’s executive director for markets, Andrew Hauser, said.

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The sudden collapse of US lender Silicon Valley Bank in March caught regulators by surprise as depositors rushed to empty their accounts using online banking services.

In a speech made at a conference organised by King’s College London, Hauser said central banks also needed to judge where their balance sheets should settle after expanding hugely since over 15 years of emergency bond-buying.

A third challenge was how to ensure the stability of the financial system as a whole - including non-bank market finance such as hedge funds - in the face of increasingly frequency systemic liquidity shocks.