Bank of England addresses tech-induced bank run risks and financial system stability By Investing.com

In a recent speech at King’s College London, Andrew Hauser of the Bank of England (BoE) highlighted three major challenges for central banks in the current financial climate. These include mitigating the risk of technology-induced bank runs, determining the suitable size of central bank balance sheets amid inflation target reinstatement, and maintaining financial system stability in the face of frequent systemic liquidity shocks.

These concerns come on the back of events earlier this year where rapid deposit runs were experienced at Silvergate Capital (OTC:SICP), Silicon Valley Bank, Signature Bank (OTC:SBNY), and First Republic Bank (OTC:FRCB). The larger and faster deposit runs, facilitated by advancements in online banking services, underscored the need for banks to maintain substantial financial buffers.

In response to these challenges, Hauser stated that the BoE has increased its reserves beyond pre-2008 levels to ensure micro- and macro-prudential stability and monetary control. This move is crucial as central bank reserves serve as the ultimate form of settlement.

Hauser also emphasized the importance of examining central bank balance sheets following 15 years of extensive expansion due to emergency bond-buying. Maintaining appropriate liquidity insurance is seen as vital in this regard. Furthermore, the BoE is augmenting alternative liquidity sources and revising its toolkit to incentivize better liquidity management within firms.

In addition to banking institutions, Hauser stressed the need to ensure stability across non-bank market finance entities such as hedge funds. This is particularly important considering the frequency of systemic liquidity shocks experienced in recent times.

In related news, First Republic Bank is planning a 25% workforce cut after securing $30 billion in deposits from 11 banks following a bank run. This development further illustrates the significant changes occurring within the banking sector as it navigates through technological advancements and evolving financial landscapes.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Get The App

Join the millions of people who stay on top of global financial markets with Investing.com.

Download Now