The Federal Reserve has urged US lenders to do more to manage their counterparty risks as the central bank says it plans to increase its oversight and conduct an analysis on how systemically important banks could cope with the default of their largest hedge fund counterparties.
Speaking at a credit risk conference in New York City, Fed vice chairman for supervision Michael Barr cited the 2022 collapse of Archegos Capital Management, resulting in more than $10bn in losses across several banks, which he said revealed gaps in how banks manage their exposure to investment funds.
“Banks need reliable, comprehensive, granular, and frequent information about their counterparties to make prudent decisions,” Barr told the conference. “Obtaining this information can be challenging because of client activity happening away from the bank.”
According to reports from Bloomberg, regulators in the US under President Joe Biden are in talks to encourage banks to enhance the consistency of the data they collect from counterparties, such as hedge funds.
Barr said that effectively assessing and managing counterparty risk for banks involves several key steps. Firstly, “it involves understanding a counterparty’s risk profile through a range of risk measurement tools”. Secondly, “banks should conduct risk aggregation within and across products, business lines and clients”. Thirdly, “banks should have capabilities for timely and accurate risk measurement given the dynamic and complex nature of trading activities”. And lastly, Barr cautioned that “based on their assessment of the risk, it is important that banks maintain appropriate levels of margin to insulate them from loss”.
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Around 142,000 UK small businesses had their accounts closed by the country’s eight largest banks last year, according to data revealed yesterday by an ongoing inquiry conducted by a UK parliamentary committee. The UK banking sector has come under heightened scrutiny for account closures amid concerns that some of the country’s small businesses are struggling to access financing.
“We can see from these figures that thousands of small businesses fall foul of their bank’s risk appetite definition, leaving them without access to a bank account,” said Harriett Baldwin, chair of the Treasury Committee, in a statement.
In recent months, there has been growing unease among small businesses regarding how banks are treating them. In December, the UK’s Federation of Small Businesses submitted a complaint to the Financial Conduct Authority, alleging that banks were unjustly requiring directors of its members to provide personal guarantees for business loans.
Bim Afolami, the UK’s economic secretary to the treasury, is scheduled to be questioned by the Treasury Committee today. The inquiry aims to determine whether UK banks are dealing fairly with their small business customers and if legislative measures might be needed to enhance their protection.
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Goldman Sachs CEO David Solomon has warned investors against growing overly confident in the Federal Reserve’s ability to achieve a “soft landing” for the US economy in its efforts to curb inflation.
Speaking at a conference organised by UBS yesterday, he highlighted the existence of a “higher level of uncertainty” attributed to lingering inflationary pressures and geopolitical risks. Expressing scepticism, Solomon remarked, “The market is way weighted to a very soft landing. And when you look at the pattern of facts the last three or four years, it’s hard for me to see it’s going to be that simple.”
As reported by the Financial Times, Solomon’s remarks reflect concerns that financial markets may have been excessively optimistic in predicting the actions of the Fed to prevent the US economy from sliding into a recession. A US recession has so far been avoided and despite the Fed raising interest rates to a current 22-year high of 5.25 per cent to 5.5 per cent, unemployment remains low.
In addition, Solomon announced that Goldman Sachs will launch its ninth private equity fund this year. Although he did not disclose the size of the new fund, in 2022, the bank closed its eighth private equity fund, raising $9.7bn.
Solomon stated the bank’s goal to achieve mid-teen percentage returns for its global banking and markets business in the medium term, while also forecasting robust margins for its asset and wealth management business. He acknowledged that there was “a little bit more work” required to refine the focus of the consumer business.
Since 2022, Goldman Sachs has reduced its consumer ambitions by divesting assets, including the fintech lender GreenSky, incurring losses in the process. It also ceased all unsecured lending activities.
The bank’s net profit dropped 24 per cent to $8.52bn last year, attributed to a slowdown in dealmaking and losses in its consumer business.
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Barclays has agreed to sell around $1.1bn of its credit card debt in the US to private equity firm Blackstone, as it looks to reduce balance sheet risk and create additional lending capacity. The London-headquartered bank said the deal is part of its recently announced strategy to prioritise increasing lending to consumers, and would reduce the bank’s risk-weighted assets by around £1bn.
As reported by the Financial Times, the deal follows a pledge by CEO CS Venkatakrishnan to return £10bn to shareholders through dividends and share buybacks, which the FT says relies on the bank achieving an increase in its revenue of around 20 per cent within the next three years.
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Russia’s largest consumer lender Sberbank has reported a record annual profit of Rbs1.5tn ($16.3bn) for 2023, a more than five-fold increase on the previous year as the country’s banking sector rebounded from the impact of financial sanctions.
According to figures reported by Reuters, Russian banks collectively achieved record profits of Rbs3.3tn for year-end 2023, driven by a significant growth in mortgage, consumer and corporate lending, despite the county’s central bank raising interest rates to their current level of 16 per cent.
Sberbank’s CEO German Gref said the bank had issued Rbs28.7tn in loans to customers last year, and its overall loan portfolio grew by 27 per cent to Rbs39.4tn.
