A senior Federal Reserve official calls for a more fulsome analysis of the events surrounding the recent bank failures in the US – and draws Switzerland in as well. finews.asia takes a look. 

The speech was held on Sunday by Fed governor Michelle Bowman at a global seminar in Salzburg, Austria, and the views expressed were her own. But, still, she did not mince her words.

Although the supervision of banks has «evolved substantially» since the 2008 financial crisis, and has continued to adapt over time, Bowman was fully cognizant of how this year’s events had cast another pall on the industry and its supervisors.

Particularly Relevant

«This is particularly relevant now in light of the calls for reform of the regulatory framework, motivated in part by a desire to remediate perceived weaknesses that contributed to recent bank failures,» Bowman indicated.

In that connection, she mentioned the demise of Silicon Valley Bank, Signature Bank, First Republic Bank – and Credit Suisse, which has since been forced by the Swiss government into the hands of UBS.

Key Deficiencies

«Many of the problems we have seen at these banks — interest rate risk, liquidity risk, poor risk management — are not caused by any evolution in banking. These bank failures and recent stress in the banking system have highlighted key deficiencies in risk management practices, and key deficiencies in supervisory priorities,» she said.

Although the Federal Reserve and other agencies were trying to determine what more could be done, she viewed the engagement of an independent third party to analyze the events of the recent bank failures as a necessary next step.

Pressing Deadlines

Although several attempts were made by the Fed internally, it relied on a limited number of «unattributed source interviews», relatively narrow scopes, while being completed to pressing deadlines and limited scope.

«There is a genuine question whether these efforts provide a sufficient accounting of what occurred,» Bowman indicated.

Substantial Value

According to her, a third-party review would add substantial value.

«A supplemental, independent review would help overcome the limitations of scope and timing of these initial efforts, and address concerns about the impartiality and independence of the reviews» Bowman indicated.

Future of Regulation

Diagnosing what went wrong could also potentially play an important role in determining future regulation and supervision.

«Misperceptions and misunderstandings about the root causes and related issues could result in changes that are not only unnecessary but result in real harm to banks and their customers, to the financial system, and to the broader economy,» Bowman said.

Swiss Parliament

Given that there are a number of things afoot that require an extensive post-mortem of the Credit Suisse debacle, among them a planned Swiss parliamentary commission of inquiry, it might be an idea to get all the parties together. That would mean getting the Federal Reserve, the Swiss National Bank, Finma, and the federal finance department to agree on the appointment of an external, and very international, auditor that would then give everyone the same report to base their conclusions and findings on.

Unfortunately, there are likely numerous bureaucratic impediments, including financial and jurisdictional, possibly even linguistic, standing in the way. What that means is that we are apt to end up seeing many different truths at the end of the day about what actually happened - and the reasons for it.