Denis Beau: Crisis prevention and management in an era of digital financial services

Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the University of Rennes, Rennes, 9 November 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Slides accompanying the speech

Introduction (slide 2)

The international financial system has been hit by major turbulence over the past 18 months, affecting both traditional financial players following the collapse of SVB, and players operating in the new digital financial system in the wake of the FTX collapse. This turbulence is the consequence of the crystallisation of traditional risks to which financial players are usually exposed, but whose impact has been amplified, and of the contagion within the financial system fuelled by increasing digitalisation of banking and financial activities.

This amplification becomes clear when we examine the case of SVB and its consequences: the collapse of this bank was initially the result of poor governance and inadequate management of traditional liquidity and interest rate risks. However, it was accelerated by the digitalisation of finance, which has facilitated massive withdrawals in record time of the overnight deposits of customers who were mainly tech companies. These customers withdrew ever larger amounts in record time – we could say "in just a click" – reflecting both their financial and digital literacy.

This role of contagion within the financial system, via the emerging links between traditional finance and an alternative 'finance' based in particular on new tokenised assets (crypto-assets) issued on a blockchain, is also apparent from the series of consequences triggered by the collapse of the FTX platform, which dragged Signature and Silvergate banks down with it. Conversely, the failure of SVB – yes, SVB again! – threatened the reserves of Circle (issuers of USD Coin) which were invested in this bank.

Ultimately, the effects of this turbulence were not systemic and did not have a major or lasting impact on the financial system as a whole or on the real economy – and we should be delighted
at this. Nevertheless, their occurrence illustrates emerging new weaknesses in the financial system, fuelled by its ongoing digital transition, raising questions about how to prevent such risks from crystallising and how to limit their consequences.