Boe Says Banks Need To Learn Lessons From Last Year

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Boe Says Banks Need To Learn Lessons From Last Year

BoE says Banks Need to Learn Lessons From Last Year

Bank of England has come up with recent comments about how banks need to learn lessons from last year to improve their strategy for risk management. For starters, a lot of crises shook the markets during 2022, and this presents a lot of lessons for the banks.

According to BoE, the reaction of the markets during the Russia-Ukraine war is a classic example. At that time, the government bonds of the Uk and the nickel market highlighted some major risk deficiencies.

Just last year, banks around the globe had $10 billion in losses mainly due to their exposure in Archegos Capital Management. This happened despite the regulatory authorities asking the banks to review their exposure to risky assets.

This is an indication that such events still happen anyway, despite messages from the relevant bodies. In this addition, it also highlights how banks end up accruing a concentrated and large exposure to single assets. And in the investing market, we know the risks that can arise from the lack of diversification.

So for 2023, BoE is hoping that banks will learn their lessons completely and will not repeat the same mistakes of 2022.

For 2023, the PRA has also outlined its supervisory priorities and has also stressed the need for how domestic lenders should work towards supporting households and businesses. This will eventually help in controlling the current economic outlook around the world.

PRA has also sent a letter to the insurers in which it highlighted how the pension funds pursued investment strategies driven by liabilities. This highlighted the inefficiencies in the firm's frameworks related to liquidity risk. So on that front, the insurers also have some lessons to learn from 2022.

In addition, PRA also made it clear that there are several risk events, such as cyberattacks, that can lead to outsized losses. So when managing the risk profile, firms also have to account for non-natural risk events.

If we look around, the chief supervisor of the Eurozone has also sent similar messages to the respective stakeholders. It said that banks need to get ready to brace for higher interest rates and the possibility of losses from loans.

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