Fifteen years after the global financial crisis, regulators, and lawmakers are revisiting longstanding debates on how to give banks’ customers, shareholders, creditors, and overseers a wider window into operations and grant lenders ready access to cash. The failures of four US banks in the opening months of 2023, including tech industry go-to Silicon Valley Bank and San Francisco’s First Republic Bank, coupled with the forced sale of Swiss stalwart Credit Suisse, has again upended assumptions about the sector’s health.

US and European regulators are fanning long-smoldering discussions on reform to head off future crises. The 2008-09 financial crisis stemmed from credit risk. This time, the focus is on bolstering banks’ liquidity: the cash and other assets essential to covering customer withdrawals. That’s likely to lead to stricter accounting requirements, more stress tests for the biggest midsized financial institutions, and fresh looks at regulating investments and insuring deposits.

While changes to the regulatory landscape are still unfolding, here are three areas where rules are likely to change and what financial institutions’ boards, risk departments, and treasury teams need to consider to stay a step ahead.

1. Measure “mark to market”

Under current regulations, banks don’t need to report unrealized losses on long- dated securities on their balance sheets if they’re designated to hold, letting firms show artificially high capital levels. That’s what happened with Silicon Valley Bank, which was reporting a $91 billion bond portfolio on its balance sheet at cost, while the portfolio’s market value had fallen to $76 billion. That kind of mismatch is what accounting reformers want to avoid.

By classifying long bonds as “held to maturity” instead of marking them to their fair market price, banks make depositors and investors piece the accounting picture together themselves. “Fair value” accounting advocates want the US Financial Accounting Standards Board (FASB) to compel banks to recognize unrealized securities losses by instead classifying them as “available for sale,” so changes in their value affect balance sheet reporting and make paper losses clearer, sooner.

Banks can prepare now for potential regulatory changes by using asset and liability management (ALM) software to run held-to-maturity and fair-value calculations in parallel, stress testing what may happen if bond prices are marked to market and rates raised further, experts say. Another approach is running many additional interest rate scenarios in software to see the effects of more extreme market conditions.

2. Looking beyond net interest margin

Asset liability management is a fundamental way banks evaluate profitability and risk. It focuses on managing net interest margin (NIM), which compares what a bank earns on its loans to the interest it needs to pay. ALM software analyzes and forecasts interest rate risk through simulations. It’s beneficial for banks to make these calculations as granular as possible, to the customer account level, instead of aggregating data and losing accuracy, experts say. Related funds transfer pricing software lets financial institutions examine profitability by customer segment, product line, or business group.

Some investors want banks to look beyond net interest margin and analyze the cash flow characteristics of financial instruments to show who’s holding deposits and how likely they are to pull their money. The net interest margin focus of US banks’ amortized cost accounting doesn’t look sufficiently forward, reformists argue.

3. Rethinking rules for superregionals

Following the 2008-09 financial crisis, US midsized banks escaped some of the Federal Reserve’s strictest stress tests as part of 2018 rollbacks of the Dodd-Frank Act. Silicon Valley Bank showed that problems at so-called superregionals—midsized financial institutions with a significant presence across multiple states—can still shake markets.

Today, only US banks with more than $250 billion in assets must meet the strictest version of the liquidity coverage ratio (LCR) stress test, which measures a bank’s easily convertible assets that can cover short-term cash needs. Likewise, only banks of that size are subject to requirements of the net stable funding ratio (NSFR), a minimum standard for reducing risk over the course of a year. The Basel III global banking regulations test banks’ capital and liquidity, and it’s important to run those liquidity ratios to spot problems even at midsized lenders, say experts.

The Basel III accord requires banks to hold at least 6% of their risk-weighted assets as Tier 1 capital, which includes the Common Equity Tier 1 ratio (CET1), the highest-quality capital assets used to absorb short-term losses. But liquidity stress tests could have flagged problems at SVB.

The Federal Reserve is considering tightening rules for institutions between $100 billion and $250 billion in size. A group of US senators wants to lower the threshold for which financial institutions are considered systemically important and thus subject to more regulation, stress testing, and publication of plans should they be forced to wind down their operations.

Getting ahead of regulations to come

To get a jump on future regulations, banks will have to shore up their own risk management, interest rate modeling, and economic stress-testing capabilities. The most astute are laying the groundwork now. Banks can use their balance sheet management software to run current and potential accounting requirements in parallel. Chief among them, asset liability management and balance sheet management applications are already helping hundreds of banks prepare for anticipated regulatory changes.

To learn more about how Oracle Financial Services Risk and Finance applications are helping institutions quickly respond to market dynamics and regulatory requirements by using advanced analytics and data management tools to drive profitability, accelerate financial reporting, mitigate risk, and improve compliance, click here. And read the full Bank Failures: 7 Potential Regulatory Responses to Anticipate Now.

Aaron Ricadela is a writer for Oracle Connect based in Frankfurt, Germany, and a former journalist who covered finance and technology for Bloomberg News, BusinessWeek, and InformationWeek.