BoE report on climate-related risk   

The Bank of England has published its report on climate-related risks and the regulatory capital frameworks which sets out the Bank’s latest thinking on climate-related risks and regulatory capital frameworks.   

Key findings covered include: 

• Existing capability and regime gaps create uncertainty over whether banks and insurers are sufficiently capitalised for future climate-related losses. 
• Effective risk-management controls within PRA-regulated firms (firms) can reduce the quantum of capital required in the future for resilience, but the absence of controls might suggest a greater quantum of capital will be required. 
• The Bank has explored conceptual issues to better understand the nature and materiality of ‘regime gaps’ in the capital framework. 
• Current evidence suggests that the existing time horizons over which risks are capitalised by banks and insurers are appropriate for climate risks.  
• Further work is needed to assess whether there may be a regime gap in the macroprudential framework. 
• Research on the conceptual challenges of incorporating climate risks into the capital frameworks appears to be limited based on submissions to the Bank’s call for research papers.

The report notes further research would be beneficial on the financial stability implications of climate change for the banking macroprudential framework and to the insurance framework. 

CP6/23 – The non-performing exposures capital deduction  

The Prudential Regulation Authority (PRA) has published CP6/23, a proposal to remove the Common Equity Tier 1 (CET1) deduction requirement in the PRA Rulebook, regarding non-performing exposures (NPE) that are treated as insufficiently covered by firms’ accounting provisions. The proposals in this CP would result in changes to the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and the Reporting (CRR) Part of the PRA Rulebook (Appendix 1). The consultation is relevant to banks, building societies, PRA-designated investment firms and PRA-approved, or PRA-designated, financial or mixed financial holding companies. 

Paolo Angelini speech on DLT  

The Deputy Governor of the Bank of Italy, in a speech on digital finance and markets infrastructure, argued that large-scale adoption of Distributed Ledger Technologies (DLTs) within financial market infrastuctures is by no means a given, saying: “The delivery versus payment settlement in central bank money requires actions by central banks, and is still under investigation. Solid evidence about actual benefits of DLT adoption for financial market infrastructure (in terms of increased efficiency, security, …) is not yet available.” 

Federal reserve Governor Michelle W. Bowman discussed the importance of innovation in banking in a speech at the Independent Community Bankers of America. 

In a broad speech, referencing everything from overdraft fees to crypto, Bowman covered three areas: “how bank regulation and supervision can best support responsible innovation. [T]he unique challenges that apply to smaller and community banks pursuing innovation. Finally, a few key actions that the federal banking regulators have taken to date, and how I think about future regulatory and supervisory actions to support innovation.” 

The Federal Deposit Insurance Corporation (FDIC) has announced that it has transferred all deposits—both insured and uninsured—and substantially all assets of the former Silicon Valley Bank, California, to a newly created, full-service FDIC-operated ‘bridge bank’ in an action designed to protect all depositors of Silicon Valley Bank. 

Depositors have full access to their money, including online banking.  Depositors and borrowers will automatically become customers of Silicon Valley Bank, NA and have customer service and access to their funds by ATM, debit cards, and so on in the same manner as before.  

A bridge bank is a chartered national bank that operates under a board appointed by the FDIC. It assumes the deposits and certain other liabilities and purchases certain assets of a failed bank. The bridge bank structure is designed to “bridge” the gap between the failure of a bank and the time when the FDIC can stabilize the institution and implement an orderly resolution.