BoE’s Kashyap wants forensic investigation of Archegos collapse

The Bank of England policymaker Anil Kashyap said that the 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.

Kashyap is a finance professor at Chicago Booth business school. And also, he is an external member of the BoE’s Financial Policy Committee. He warned that new European Union bank capital rules could have tragic outcomes if abused. In March, Archegos defaulted on margin calls. This leaves the banks nursing heavy losses, after a fire sale of the shares which meant to act as a collateral.

Credit Suisse lost more than $5 billion. Japan’s Nomura lost almost $3 billion. U.S. banks such as Goldman Sachs which also acted as brokers for Archegos suffered much lower losses. Kashyap said in a speech at an event hosted by the Monetary Authority of Singapore and the Bank for International Settlements that one wonders what the supervisors in the various countries knew about their bank’s exposure to Archegos.

For a forensic investigation of what went wrong at the various brokers that were serving Archegos, according to Kashyap cross-border cooperation between regulators was needed. He also added that the speech represented only his personal view and it is not a BoE policy position.

Other BoE officials are concerned about an EU bank capital ruling. This 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 bank’s in-house software would raise much money if it needed to be sold in a crisis.