Date: 23rd March 2023 Time: 10.30am-12.00pm GMT
Panellists: Ron Anderson (LSE, SRC, CEPR), Jon Danielsson (LSE, SRC), Charles Goodhart (LSE, FMG), Lutfey Siddiqi (LSE & NUS RMI), Kathleen Tyson (Pacemaker.Global)
Moderator: Jean-Pierre Zigrand (LSE, FMG, SRC)
The rapid collapse of Silicon Valley Bank before its closure by the FDIC immediately raised the prospect that this could spill-over into a systemic banking crisis. It has brought back memories of how troubles in a small corner of the US mortgage market (sub-prime) in 2006-07 opened up cracks in the financial system that spread by 2008-09 into the Global Financial Crisis. This panel will give an international perspective of the on-going crisis containment measures being taken by US authorities and will give their views on defensive measures appropriate for policy-makers globally.
The panel discussed these questions:
- To many, the collapse of SVB looks like a failure of the regulatory and supervisory regime that was put in place following the GFC of 2008-2009. What are the weaknesses this reveals? What was the role of increased political pressure on the Fed?
- Is SVB’s failure a systemic risk? How could it spread globally? What options do local and global policy-makers have? What if there are other SVBs?
- The risks taken by SVB seemed to include the old fashioned interest rate risk in the banking book and inadequate liquidity management, including highly concentrated assets and liabilities. How could any board member or supervisor miss this?
- It seems like this would have been detected by a fairly simple stress test. Were any stress-tests done? If yes, why did they not reveal this risk? If no, why were they not done?
- SVB capital was overstated due to hold-to-maturity (HTM) instead of available-for-sales (AFS) accounting treatment. How many banks would be insolvent in this rising rate environment if assets had to be held as AFS? What lessons are there?
- How will the SVB repercussions affect the global interest rate and inflation dynamics?
Ron Anderson is a Professor of Finance at the London School of Economics, a member of the Financial Markets Group, a fellow at the CEPR and a co-investigator in the Systemic Risk Centre. He is a visiting professor at Xinhua College of Sun Yat-sen University. In recent years much of his work has focused on dynamic corporate finance and debt securities. Ron has an active interest in financial institutions and currently has a project underway on Chinese debt capital market with a particular focus on the relation of credit risk to enterprise reform.
Jón Daníelsson (@JonDanielsson) is Reader in Finance at LSE and Co-Director of the Systemic Risk Centre. His research interests cover systemic risk, financial risk, econometrics, economic theory and financial crisis. His latest book, The Illusion of Control: Why Financial Crises Happen, and What We Can (and Can't) Do About It, published by Yale University Press, is out now. He has written two other books, Financial Risk Forecasting and Global Financial Systems: Stability and Risk and published a number of articles in leading academic journals. Jón writes regularly about his research on modelsandrisk.org and he blogs on VoxEU.
Charles Goodhart, CBE, FBA was the Norman Sosnow Professor of Banking and Finance at the London School of Economics and Political Science until 2002; he is now an Emeritus Professor in the Financial Markets Group there. Before joining LSE in 1985, he worked at the Bank of England for seventeen years as a Monetary Adviser, becoming a Chief Adviser in 1980. During 1986, Goodhart helped to found, with Mervyn King, the Financial Markets Group at LSE, which began its operation at the start of 1987. In 1997, he was appointed one of the outside independent members of the Bank of England’s new Monetary Policy Committee until May 2000.
Lutfey Siddiqi (@Lutfeys) is Visiting Professor in Practice at LSE IDEAS and Advisory Board member at the Systemic Risk Centre. He is also an Adjunct Professor at the National University of Singapore and advisory board member of the Centre for Governance (CGIO) at NUS business school. He was previously Global Head of Emerging Markets for Foreign Exchange, Rates & Credit at UBS Investment Bank.
Kathleen Tyson (@Kathleen_Tyson_) is Chief Executive of Pacemaker.Global. She started her career as a central banker at the Federal Reserve Bank of New York. She was a founder member of the Systemic Risks Studies Group. She moved to London to supervise the London Stock Exchange, Clearstream, Euroclear, and Swift, and oversee legal and operational reforms to digitalise UK securities. She globalised US dollar liquidity with Clearstream, co-inventing Triparty Repo (now $10.2 trillion in daily secured interbank lending) and adding clearing and settlement of US Treasuries, bonds and equities to the Luxembourg depository. Next she advised on CLS Bank governance and designed operations with IBM. (Peak foreign exchange settlements in 18 currencies now exceed $14 trillion a day.) From 2013 to 2017 she worked with Intellect Design Arena to globalise fully digital, real-time, integrated solutions for central bank modernisation. Pacemaker.Global brings together all her experience and insight on global markets, infrastructure, liquidity, and systemic risk to de-risk the transition to a multipolar, multicurrency global economy.
Jean-Pierre Zigrand (@JPZigrand) is Associate Professor of Finance, Co-Director of the Systemic Risk Centre and Co-Director of the Financial Markets Group at the London School of Economics. His research interests are in the areas of systemic risk and asset pricing in which he has an extensive publication record. His teaching is principally in quantitative finance at MSc, PhD and executive levels. He has been a member of the Bank of England Bank’s Macroprudential Panel - Market Subgroup and has acted as a consultant to private sector financial institutions, to the Luxembourgish Central Bank as well as to regulatory bodies. He has been a Lead Expert to the UK Foresight Team on the Future of Computer Trading.
Photo by Mariia Shalabaieva on Unsplash