Archegos blow-up prompts regulatory questions at Basel Committee

The failure of Archegos Capital Management is prompting calls for more oversight of the industry.
The failure of Archegos Capital Management is prompting calls for more oversight of the industry.PHOTO: AFP

BASEL, SWITZERLAND (BLOOMBERG) - Global banking regulators will discuss the collapse of Archegos Capital Management, whose failure threatens to cost its lenders some US$10 billion (S$13.3 billion) and is prompting calls for more oversight of the industry.

Ms Carolyn Rogers, secretary-general of the Basel Committee on Banking Supervision, said the blow-up of Mr Bill Hwang's family office last month has already highlighted holes in banks' understanding of complex trades.

"Disclosure was an issue," Ms Rogers said in an interview this week. The banks involved, which included Nomura Holdings and Credit Suisse Group, could not "get a full picture of the complete exposure this client had", she said.

Ms Rogers said that while it is too early to lay out a specific regulatory response, the Basel Committee will probably intensify scrutiny of structured financial products and total return swaps. The committee, whose members include the Federal Reserve and European Central Bank, has been looking into the products in recent years.

"A case like this, with losses of this magnitude at multiple global banks all traced back to a single client or a single transaction, will always be something that gets discussed at the Basel Committee table," Ms Rogers said.

The committee's work comes as the United States Securities and Exchange Commission faces pressure to examines rules meant to ensure all traders are transparent about their use of swaps. Data standards introduced by the Dodd-Frank Act are still not fully implemented more than a decade later.

Ms Rogers, who has been secretary-general since 2019, also said that a lack of data makes it difficult to impose environmental risk weightings on banks' assets.

"Regulation is meant to look at the risks of climate on banks not the risk of banks on climate," she said

The authorities agree that pandemic-related regulatory relief for banks should be unwound, but the timing could vary by country.

The US' so-called leverage ratio is "considerably tougher than the Basel standard", Ms Rogers said, and the authorities in America considering revisions to the regulation "have a lot of room to manoeuvre before they're anywhere near offside".

Imposing separate risk weights on banks' holdings of sovereign debt is a "very difficult" policy issue. "Banks around the world are holding more sovereign debt than they were a year ago for very obvious reasons," Ms Rogers said. "Equally, if we had had risk weights in place, it would have made the last year more difficult. It would not have been helpful."