LONDON (Reuters) – Financial regulators should undertake a detailed cross-border probe into how the collapse of U.S. investment fund Archegos cost mostly foreign banks more than $10 billion, Bank of England policymaker Anil Kashyap said on Wednesday.
Kashyap, a finance professor at Chicago Booth business school and an external member of the BoE’s Financial Policy Committee, also warned that new European Union bank capital rules could have “tragic” outcomes if abused.
Archegos defaulted on margin calls in March, leaving banks nursing heavy losses after a fire sale of the shares that had been meant to act as collateral.
Credit Suisse lost more than $5 billion and Japan’s Nomura lost almost $3 billion, while U.S. banks such as Goldman Sachs which also acted as brokers for Archegos suffered much lower losses.
“One wonders what the supervisors in the various countries knew about their banks’ exposure to Archegos,” Kashyap said in a speech at an event hosted by the Monetary Authority of Singapore and the Bank for International Settlements.
Cross-border cooperation between regulators was needed “for a forensic investigation of what went wrong at the various brokers that were serving Archegos,” he added.
Kashyap said the speech represented his personal view, not a BoE policy position.
However, he shared concerns expressed by other BoE officials about an EU bank capital ruling in December that allows banks to treat software investments as capital for regulatory purposes.
The BoE has banned British banks from doing the same as it does not think banks’ in-house software would raise much money if it needed to be sold in a crisis.
“The rules have not been in place long enough for any weak banks to seriously exploit them. However, it would be tragic if by doing so a bank were able to maintain or launch a risky cross-border business that later unravelled in a way that spilled into another country,” Kashyap said.
(Reporting by David Milliken; Editing by Gareth Jones)