(SP89) Supervisory Policy Insights From US And UK Bank Failures, by Eufrocinio M. Bernabe, Jr. and Dongkoo Chang
The US Federal Deposit Insurance Corporation – Office of theInspector General Report (2013) and the UK’s Turner Report (2009) provide insights on the multiple contributing factors to bank failures that resulted in the unprecedented global contraction. Both reports mentioned that bank failures were often associated with failure in market discipline; corporate governance breakdown exhibited through weak underwriting and credit administration policies; risks of highly interconnected global banks and pursuing aggressive growth strategies using nontraditional and riskier funding sources. These bank failures that occurred in the US and the UK, which led to the Global Financial Crisis (GFC), offer unrivalled opportunities for accelerated learning.
In this essay, we try to summarize some common factors that contributed to bank failures in order to stimulate transformational thoughts, generate new ideas, help evolve best practices and cascade them into meaningful and practical policies. As a caveat, the selected lessons are limited to where the authors felt there is need for further discussion and debate.
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