Reserve Bank of India governor Shaktikanta Das, referring to the Silicon Valley Bank shutdown and its aftereffects, said that the developments in the US banking system have brought to the fore the criticality of banking sector regulation and supervision.
Such developments, the central bank governor Das said, in the US drive home the importance of ensuring prudent asset liability management, robust risk management, undertaking periodic stress tests, and building up capital buffers for any unanticipated future stress.
"These are areas which have significant impact on preserving financial stability of every country," governor Das said, speaking at the 17th KP Hormis Commemorative Lecture, organised by Federal Bank on Friday.
Prominent global lender in the world of technology startups, the Silicon Valley Bank collapsed last Friday, forcing the US federal government to step in.
Following the Silicon Valley Bank, New York-based Signature Bank was closed by the state regulators on Sunday (local time), becoming the second US bank to have collapsed. In aftereffect, some other US banks too saw a sharp dip in their share prices.
Regulators shut down the lenders and put it under the control of the US Federal Deposit Insurance Corporation (FDIC). The FDIC is acting as a receiver, which typically means it will liquidate the bank's assets to pay back its customers, including depositors and creditors.
Further, continuing with his remarks made earlier on various occasions, such developments also bring out that cryptocurrencies, or assets, can be a "real danger to banks, whether directly or indirectly".
Governor Das had said in December cryptocurrencies should be "prohibited" and that if they are allowed to grow "next financial crisis" may come from private cryptocurrencies. He had maintained such assets absolutely no underlying and it is a speculative activity.
"The Reserve Bank has taken necessary steps in all these areas. The regulation and supervision of the financial sector and the regulated entities have been suitably strengthened," Das said Friday during the lecture.
Meanwhile, discussions are on about the crypto framework with the G20 countries, and it was part of the agenda at the recently held G20 finance ministers and central bank heads meeting in Bengaluru. (ANI)