Standard Chartered CEO Warns Banking Sector Risks Will ‘Come Home to Roost’

The head office of Standard Chartered bank in the City of London, on Feb. 27, 2015. Reuters/Eddie Keogh

Standard Chartered CEO Bill Winters warned that the U.S. banking sector may face another crisis after avoiding a near collapse last month.

He spoke with CNBC’s Joumanna Bercetche on April 24 to discuss the future outlook of the industry.

Regulators intervened in March to prevent mass panic after the collapse of Silicon Valley Bank, Signature Bank, and Credit Suisse—interventions which Winters thought were quite effective, but he noted that some regulatory gaps still need to be filled.

Winters commended the “highly impactful” actions of both U.S. and Swiss central bankers in stemming the outflow of deposits in last month’s panic.

Swift intervention prevented the sudden multiple bank failures from escalating into a wider banking crisis.

Standard Chartered CEO Says More Regulatory Weakness Need to Be Addressed

The bank CEO noted that last month’s crisis also highlighted some regulatory shortcomings which need to be addressed with caution and consideration.

“There were clearly some regulatory gaps that were highlighted through this, and I have no doubt that we’ll close the specific gaps that have been identified,” he said.

“I think there’s a risk that we’ll react now and try to close every gap as if everybody had an equal gap to begin with, and that’s not the case.”

“I think we could burden the economy with a tremendous amount of excess regulation in response to this if we’re not careful,” he added.

Winters warned that future problems could “come home to roost in some form of a crisis” if similar imbalances in other banks are exposed. “I think we can put the crisis behind us. I don’t think we can put the issue behind us,” Winters said.

He cautioned that the “dramatic change in the macroeconomic environment” from the Federal Reserve’s aggressive interest-rate hikes to control rising inflation may have worsened existing underlying flaws at certain bank business models.

“That exposed some underlying flaws in business models, or exacerbated flaws that we knew were there, but maybe didn’t appreciate how serious they were,” he said, noting that “those flaws are still there.”

“There are other imbalances that built up during this long period of very low interest rates that haven’t come home to roost in some form of a crisis. It’s incumbent on us to understand where those are to try and anticipate the changes that can come,” he added.

Banking Sector Still Dealing With Losses After March Panic

The extent of the damage facing the industry following last month’s turmoil are now coming to light as the market reacts to the flow of quarterly earnings reports from the banks this week.

First Republic lost 20 percent of its share value in premarket trading on April 25 after its first-quarter earnings saw deposits drop 41 percent, despite announcing that withdrawals had stabilized this month.

Meanwhile, UBS Group, which agreed to take over Credit Suisse last month, announced a fall in its earnings during the quarter due to U.S. residential mortgage-backed securities litigation.

However, it did take in $28 billion in fresh liquidity in its global wealth management division following its deal to acquire its Swiss rival.

Standard Chartered, which makes the most of its earnings in Asia and in developing economies, is set to release its earnings report on April 26.

The UK-based bank reported a 28 percent rise in annual pretax profit last quarter, as global interest-rate hikes led to a boost in its lending revenue.