Banks still need to improve their risk management and learn the lessons from various crises that rocked markets in 2022, regulators at the Bank of England said on Tuesday.
The market reaction to Russia’s invasion of Ukraine and turmoil in nickel and British government bond markets highlighted risk deficiencies at banks, the BoE’s Prudential Regulation Authority (PRA) wrote in letters to bank CEOs.
The shortcomings came despite the PRA asking firms to review their risk exposures after the collapse of Archegos Capital Management – which saddled global banks with $10 billion of losses – the previous year, the regulator said.
“However, despite regular messaging from the PRA on the subject, these events demonstrated that firms continue to unintentionally accrue large and concentrated exposures to single counterparties, without fully understanding the risks that could arise,” the letters said.
“In 2023, firms must ensure that those lessons from past crises are definitively learned in full, and thoroughly embedded across the first and second lines of defence.”
The letters outlined the PRA’s supervisory priorities for banks for 2023, and also called on domestic lenders to ensure they were able to continue to support businesses and households and withstand a challenging global economic outlook.