Navigating the Bank Regulation Landscape (2024)

As bank regulation continues to evolve, there are actions businesses can take in the near term to position themselves given the recent lessons learned from market events. For many, the expected upcoming regulatory scrutiny will result in higher-touch supervision, particularly on the stability of deposit funding and interest rate risk management. For many banks, measures can be taken to gain a competitive advantage, drive growth, and increase profitability while also protecting themselves and their assets from potential losses and risks. Discover in our latest perspectives what the recent developments can mean for your organization and how you may prepare to respond.

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On July 27, 2023, the federal banking regulators—i.e., the FRB, the OCC, and the FDIC—released the long-awaited US Basel III Final Reforms

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On April 28, the Board of Governors of the Federal Reserve System (FRB) and the Federal Deposit Insurance Corporation (FDIC) published reports on the specific risk and supervisory issues that led to two significant bank failures in March of this year.

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By March 2023, the US economy experienced a shock to the banking industry as a result of multiple bank failures, primarily driven by substantial liquidity and interest rate risk management weaknesses. These failures have raised questions on the health of the US banking system given the speed at which the recent events took place. Have challenges related to banks deemed as “too big to fail” really been addressed? Are the existing regulatory frameworks keeping pace with the risks posed by large regional banks? In the absence of stronger resolution and recovery planning requirements for large regional banks, regulators believe failures are highly likely to pose substantial risks to the banking system and potentially further erode a loss of trust in the US banking system.

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The stability of the banking system experienced a recent shock largely due to concerns around interest rate risk management practices and liquidity mismatches, together with a loss of market confidence in certain large institutions. During such times of distress, it is even more important that regulatory bodies across the globe have a clear understanding of the risks global firms pose to their respective jurisdictions, which largely crystallize through the legal entities they supervise and the relationships those entities have with internal and external counterparties.

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The recently finalized FR 2052a reporting rule is the next evolution of liquidity data reporting requirements, increasing the level of detail of an institution’s liquidity profile, including additional information on securities financing transactions, wholesale unsecured funding, deposits, loans, unfunded commitments, collateral, derivatives, and foreign exchange.

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Global and local financial regulators have reinforced their requirements for strengthening governance, risk management, and controls since the financial crisis in 2008 through new regulations, supervisory guidance, and focused examinations and inspections.

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US regulators have reiterated the requirements and expectations for banks to demonstrate effective and sustainable governance structures since the financial crisis in 2008 through new regulations, changes to rating systems, and additional issuances of supervisory guidance. However, despite enhancement efforts, regulatory feedback continues to indicate that banks have not done enough to evaluate the effectiveness of their governance structures and the impact these structures have on the bank’s operations, regulatory standing, operationalization of risk management framework, and promotion of culture across the firm.

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The Federal Reserve Board issued proposed guidance outlining supervisory expectations for senior management, business line management, and independent risk management and controls in the form of principles. The guidance is generally consistent with a high-level preview of expectations provided in the August 2017 proposal to establish a new rating system for large financial institutions.

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As an expert and enthusiast, I don't have access to real-time search results or the ability to browse the internet. However, I can provide you with some general information related to the concepts mentioned in the article you provided.

The article discusses the evolving landscape of bank regulation and the actions that businesses can take to position themselves given recent market events. It highlights the expected increase in regulatory scrutiny, particularly regarding deposit funding stability and interest rate risk management. The article suggests that banks can take measures to gain a competitive advantage, drive growth, increase profitability, and protect themselves from potential losses and risks.

While I don't have access to the specific details of the article, I can provide you with a general understanding of the concepts mentioned:

Regulatory Scrutiny: This refers to the examination and oversight conducted by regulatory authorities to ensure that banks and financial institutions comply with relevant laws, regulations, and guidelines. Regulatory scrutiny helps maintain the stability and integrity of the financial system.
Deposit Funding Stability: This refers to the ability of banks to maintain a stable and reliable source of funding through customer deposits. Banks rely on deposits to fund their lending activities and other operations. Ensuring deposit funding stability is crucial for maintaining liquidity and financial stability.
Interest Rate Risk Management: Banks are exposed to interest rate risk, which refers to the potential impact of changes in interest rates on their profitability and financial condition. Effective interest rate risk management involves strategies and measures to mitigate the adverse effects of interest rate fluctuations.
Competitive Advantage: This refers to the unique strengths and advantages that enable a business to outperform its competitors. In the context of banking, a competitive advantage can be achieved through various means, such as offering innovative products and services, providing superior customer experience, or having efficient operational processes.
Growth and Profitability: Banks aim to achieve sustainable growth and profitability by expanding their customer base, increasing market share, and optimizing their operations. This can be achieved through strategic initiatives, effective risk management, and capital allocation.
Risk Management: Banks are exposed to various risks, including credit risk, market risk, operational risk, and liquidity risk. Effective risk management involves identifying, assessing, and mitigating these risks to protect the bank's financial health and reputation.

Please note that the information provided above is a general overview of the concepts mentioned in the article. For specific details and insights, it would be best to refer to the original article or consult with banking and regulatory experts.