An independent review announced by Federal Reserve Vice Chair for Supervision Michelle Bowman found that supervisors knew or should have known about Silicon Valley Bank’s vulnerabilities well before its failure but did not act promptly. European Central Bank data meanwhile showed problem-loan balances rising even as the headline non-performing loan ratio edged lower.

Elsewhere, Australian data separated improving short-term liquidity from weaker structural funding, while proposed US stress-test changes moved closer to final consideration. Hong Kong announced a new offshore renminbi liquidity mechanism, Japan and Malaysia doubled their bilateral foreign-currency backstop, and European banks and regulators addressed capital issuance, third-party dependencies and financial-crime controls.

Read more on the week’s key developments.

1. Supervisors knew or should have known of SVB vulnerabilities by March 2022

On 18 September, Federal Reserve Vice Chair for Supervision Michelle Bowman announced findings from an independent Starling Advisory Group review of Silicon Valley Bank, which California regulators closed on 10 March 2023 and placed into Federal Deposit Insurance Corporation receivership. The review found that SVB had unrealised securities losses exceeding its capital, a 94% uninsured and highly concentrated deposit base, and inadequate readiness to access the discount window. Supervisors knew or should have known about these vulnerabilities by March 2022 but did not act promptly, it said. Bowman noted that the views expressed were her own.

SVB’s vulnerabilities were mutually reinforcing. Securities losses weakened its balance sheet, concentrated uninsured deposits increased run risk and weak contingency-funding readiness constrained its response once withdrawals accelerated. The review adds a supervisory dimension by showing that identified risks did not translate quickly enough into escalation or remediation.

2. ECB problem loans rise despite lower headline NPL ratio

The European Central Bank reported on 15 September that the Common Equity Tier 1 ratio of significant institutions was broadly unchanged at 16.00% in the second quarter, compared with 15.99% in the first. The non-performing loan ratio excluding central-bank cash and other demand deposits fell to 2.17% from 2.18%, although NPL balances increased 2.1% as total loans grew 2.6%. The SME NPL ratio increased to 4.72% from 4.65%, while aggregate Stage 2 loans fell to 9.18% from 9.29% of loans subject to impairment review.

The headline NPL ratio improved because total loans grew faster than the stock of problem loans, rather than because NPL balances declined. The deterioration was uneven, with the SME NPL ratio increasing while aggregate Stage 2 exposure declined. Absolute balances and portfolio composition therefore remain important alongside the headline ratio, particularly when loan growth can mechanically improve percentage measures.

3. EBA finalises third-party risk guidelines for non-ICT services

The European Banking Authority published final guidelines on 18 September covering third-party risk arising from non-information and communications technology services. The framework focuses on arrangements supporting critical or important functions and covers risk assessment and due diligence, contracting, subcontracting, monitoring, documentation and exit strategies. A two-year transitional period is planned. The guidelines are final and awaiting translation but are not yet applicable.

The guidelines extend structured third-party oversight beyond ICT services and make materiality assessment central to implementation. Institutions will need to identify which external dependencies support critical functions and ensure that monitoring, subcontracting controls and exit arrangements reflect those exposures. Implementation will depend on whether banks classify external dependencies consistently and can demonstrate workable alternatives when critical providers fail.

4. Fed prepares final changes to bank stress tests

On 18 September, Bowman said the Federal Reserve Board would consider final revisions to its stress-testing framework in the coming weeks. The outstanding proposals include greater disclosure of stress-test models and scenario design and averaging a bank’s two most recent annual stress-test results when determining its stress capital buffer. The proposed framework would also move the annual buffer’s effective date from 1 October to 1 January. Bowman said the two changes would halve stress capital buffer volatility without materially changing aggregate required capital. She also said the Board would consider using two global market-shock scenarios, with the larger loss feeding into the buffer.

Two-year averaging would make capital requirements less sensitive to a single annual test, increasing predictability but also smoothing some year-specific risk variation. Using the larger loss from two market-shock scenarios could partly offset that effect for trading-intensive banks. The proposals change how stress outcomes feed into capital planning rather than directly altering minimum capital requirements.

5. UniCredit adds EUR 750 million of Additional Tier 1 capital

UniCredit issued EUR 750 million ($861 million) of Additional Tier 1 securities on 18 September as part of its 2026 institutional minimum requirement for own funds and eligible liabilities funding plan. The bank said the transaction would increase its Tier 1 ratio by approximately 25 basis points. The perpetual securities carry a 6.25% coupon and include a 5.125% Common Equity Tier 1 trigger under which the instrument can be temporarily written down. Investor demand exceeded EUR 3.5 billion ($4 billion).

The issuance improves Tier 1 headroom without increasing the bank’s permanent common-equity base. Its 5.125% CET1 trigger determines when it begins absorbing losses, while demand of more than EUR 3.5 billion allowed UniCredit to add the buffer at a 6.25% coupon.

6. APRA reports stronger capital and short-term liquidity but weaker stable funding

The Australian Prudential Regulation Authority reported on 17 September that the banking sector’s total capital base increased 3.7% year on year to June 2026, ahead of 3.1% growth in risk-weighted assets. The total capital ratio increased to 20.5% from 20.4%, while the liquidity coverage ratio rose to 133% from 130%. The net stable funding ratio, however, declined to 114.5% from 116.2%.

Australia’s banks strengthened their immediate loss-absorption and liquidity positions, but the decline in the net stable funding ratio points to slightly less protection against longer-term funding disruption. The divergence shows why short-term liquidity and stable funding should be assessed separately rather than treating an improving liquidity coverage ratio as evidence of stronger funding resilience overall.

7. FCA investigates Euro Exchange Securities over possible financial-crime control failures

The Financial Conduct Authority announced on 16 September that it had opened an investigation into potential Money Laundering Regulations offences by Euro Exchange Securities (UK) Ltd between 1 February 2020 and 4 June 2026. The FCA is examining areas including money-laundering risk assessment, customer due diligence, ongoing monitoring, governance and oversight, resourcing, record-keeping and escalation. The investigation follows the FCA’s June restrictions on the firm’s payment and electronic-money activities, the appointment of special administrators and an asset requirement requiring relevant funds to be ring-fenced in a safeguarding account. The FCA said it had reached no conclusion on whether breaches occurred.

The investigation centres on whether Euro Exchange Securities identified and escalated financial-crime risks effectively throughout the customer and transaction lifecycle. Earlier safeguarding restrictions and special administration raise the consequences of any control failure, but no breach, customer shortfall or financial loss has been established.

8. Japan and Malaysia double bilateral foreign-currency liquidity backstop

Bank Negara Malaysia and the Bank of Japan announced on 15 September that they had signed their third bilateral swap arrangement, effective from 18 September, with a maximum amount of $6 billion. The arrangement allows the two authorities to exchange their local currencies for US dollars and permits Bank Negara Malaysia to exchange Malaysian ringgit for Japanese yen. The previous arrangement, renewed in September 2023, provided up to $3 billion.

The larger arrangement gives both authorities more foreign-currency capacity during market stress and expands the regional financial safety net. It is a precautionary backstop and does not indicate current dollar or yen funding pressure.

9. HKMA plans seven-day offshore renminbi liquidity tenders

The Hong Kong Monetary Authority plans to introduce seven-day renminbi liquidity tenders to support the offshore market and reinforce Hong Kong’s role as a renminbi funding centre. The measure will supplement the HKMA’s existing liquidity facilities, which are intended to address short-term tightness in the offshore renminbi market. Operational details including the tenders’ launch date, frequency, pricing and size have not yet been disclosed.

The mechanism would give banks a more predictable short-term source of offshore renminbi funding during periods of concentrated payment, settlement or investment flows. Its practical value will depend on the frequency, pricing and size of the tenders.

10. Bank of Ireland raises EUR 750 million through green Tier 2 bond

Bank of Ireland raised EUR 750 million ($861 million) through a green Tier 2 bond on 18 September, securing what it described as the tightest credit spread achieved by an Irish bank on such an instrument. The 10.5-year bonds carry a 4.75% coupon and were priced at 130 basis points over mid-swaps, 30 basis points inside the initial guidance. Orders exceeded EUR 5.8 billion ($6.7 billion) from approximately 250 investors. The bank said the issuance supports its regulatory capital position.

The bond adds total regulatory capital and gone-concern loss-absorbing capacity but does not increase Common Equity Tier 1 or Tier 1 capital. Demand exceeding seven times the allotted amount enabled the bank to price at a record-low Tier 2 credit spread, although it did not disclose the resulting uplift to its total capital ratio.