Morgan Stanley CEO James Gorman said limiting banking activities to “small sandboxes” could help prevent further shocks to the financial system after the failure of Silicon Valley Bank affected the sector in recent weeks.
Regulators should work to “force banks to operate with small sandboxes, vigilant oversight, aligned compensation policies, strong boards, stable CEOs, intentional succession planning, rigorous annual stress tests and capable supervision,” Gorman said, according to a report in the Sydney Morning Herald.
The Morgan Stanley CEO
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made the remarks in his home country of Australia in a speech titled “What Happened to the Concept: You Can Bank On It,” as part of the annual Keith Murdoch Oration at State Library Victoria.
Even if those precautions are taken, Gorman said, some banks may still collapse, but that would have less of an impact on the overall banking system.
The current challenges faced by banks revolve around a shortage of liquidity to cover drops in deposits, he said, adding that this differs from the 2008 crisis, which resulted from a more widespread impact on credit.
The collapse of Silicon Valley Bank that touched off a rush on deposits at other banks was fed by a huge surge in electronic withdrawal transactions in a single day.
“With the click of an iPhone, $42 billion left one bank in one day,” Gorman said. “To give you a sense of the order of magnitude, in the financial crisis of ’08, one bank lost $17 billion in a week.”
On the topic of China, Gorman said Australia maintains a “complex” relationship with the country, which is its largest export market.
“We should look forward to many decades of U.S., China and Australia trade and understand the inevitable issues that will be part of that journey — but in my view, to be the ally of one is not to be the enemy of the other,” Gorman said.
Named for the father of News Corp.
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Executive Chair Rupert Murdoch, the Keith Murdoch Oration was established by the State Library Victoria in 2001 to honor the elder Murdoch’s contributions to the library, museums and the National Gallery of Victoria.
A Morgan Stanley spokesperson did not comment.
Shares of Morgan Stanley are down 1.2% so far in 2022, compared with a 6.5% rise by the S&P 500
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Gorman’s comments came after JPMorgan Chase
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said that the current crisis is not yet over but that it does not appear to be close to the systemic threats faced by banks during the 2008 global financial crisis.
Also read: JPMorgan’s Jamie Dimon says banking crisis is ‘not over,’ but it will pass
This post was originally published on Market Watch
