Blowups at a number of banks this year revived memories of the 2008 financial crash and the need for lenders to have sufficient "buffer capital" to ride market storms. When HNW individuals contemplate their accounts, the financial strength of an institution has come right back to the top of the agenda.

The US Federal Reserve’s regulatory chief said he has decided to strengthen financial cushions for larger banks, moves he said will make the system more robust following failures at mid-sized lenders such as Silicon Valley Bank and First Republic Bank this year, a report said.

According to prepared comments yesterday, Michael Barr, vice chair for supervision, was quoted by the Wall Street Journal as saying: “Events over the past few months have only reinforced the need for humility and skepticism, and for an approach that makes banks resilient to both familiar and unanticipated risks.” 

The demise of these banks – later put into the arms of the Federal Deposit Insurance Commission and then bought by other banks – rattled markets. (See stories here and here.) They revived memories of the 2008 crash and how it focused attention on the risk controls and balance sheet strength of banks. Within the wealth management sector, firms have told Family Wealth Report that it has prompted HNW clients to reconsider their banking arrangements and diversify their accounts. The same message has been relayed in other countries, from Switzerland to Singapore. 

According to the Fed’s proposed plans, due to be issued later this year, the largest banks could be required to hold an additional 2 percentage points of capital, or an additional $2 of capital for every $100 of risk-weighted assets, Barr was quoted as saying. 

The precise amount of additional capital will depend on a firm’s business activities, with the biggest increases expected to be reserved for the largest, most complex US megabanks, Barr said.

The SVB collapse focused attention on the way banks, flush with deposits, bought government bonds and managed their market exposures without, so it was argued, being prepared for rising interest rates. (See an analysis of SVB here.) The SVB saga in particular also highlighted the plight of the tech sector that benefited from more than a decade of ultra-low interest rates, and must now adapt to rising rates.