Explanation:
The lack of mandated loss-absorbing capacity, such as long-term debt or other instruments designed to absorb losses, made these banks more vulnerable to rapid deposit withdrawals. Without this buffer, they were less able to withstand the pressure of sudden liquidity outflows, increasing the likelihood of failure and potential systemic consequences.
A is incorrect. The issue was not excessive regulatory oversight but rather insufficient oversight or requirements for non-G-SIB banks. Mid-sized banks faced lighter regulations compared to G-SIBs, which left gaps in their preparedness for crises.
B is incorrect. On the contrary, many of the failed banks, such as Silicon Valley Bank, had a significant reliance on uninsured deposits, which exacerbated the speed and severity of deposit outflows during the crisis.
D is incorrect. Resolution planning for mid-sized banks was less rigorous than for G-SIBs, highlighting a gap in preparedness rather than an overabundance of planning.
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Q.6310 The US bank failures of 2023 exposed several weaknesses in the existing resolution framework, particularly regarding institutions not designated as G-SIBs. What key weakness was highlighted concerning these banks' ability to withstand rapid deposit outflows?
A
The strict regulatory oversight they were subjected to.
B
The limited reliance on uninsured deposits in their funding models.
C
The absence of mandated loss-absorbing capacity requirements, such as long-term debt.
D
The extensive pre-failure resolution planning conducted by regulatory authorities.
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