Adds reaction and international context from paragraph 5

By Phoebe Seers

LONDON, March 17 (Reuters) - The Bank of England on Tuesday set out a proposed new framework for banks' liquidity that aims to improve their ability to convert assets into cash during stress events.

The BoE's prudential arm said the proposed changes build on lessons learned from the collapse of Silicon Valley Bank and Credit Suisse in March 2023.

"We’ve focused the changes not on increasing the amount of liquid assets banks have to hold, but instead on making sure that those assets do what they say on the tin and really are usable in the event of a run,” said Sam Woods, CEO of the Prudential Regulation Authority, after the regulator put forward the plans in a three-month consultation process that kicked off on Tuesday.

The proposals include requiring banks to conduct internal stress tests on how they would react to rapid outflows within a week, and seek to streamline reporting and encourage firms to be ready to use central bank instruments in stress.

The prospect of social media-driven bank runs has created new risks for regulators. The BoE said that in the United States, Silicon Valley Bank in 2023 had a deposit outflow rate of 85% over 2 days, compared with British lender Northern Rock's outflow rate of 20% in 4 days in 2007.

Experts say the regulator needs to tread cautiously.

"The PRA will need to think carefully when imposing additional liquidity requirements on firms as a result of the new stress test," said Rob Dedman, a partner at law firm CMS and the former PRA head of enforcement.

"Historically, the PRA has been criticised for imposing disproportionate requirements on smaller firms. Any PRA intervention in the sector will need to take account of the fact that smaller firms may need longer to meet additional liquidity requirements than their larger peers," he said.

The renewed scrutiny follows a warning this month from the Bank for International Settlements on the need for greater crisis preparedness.

BIS General Manager Pablo Hernandez de Cos said the events of 2023 showed regulators must adapt to faster bank runs enabled by 24/7 payments, mobile banking and social media.

U.S. authorities also announced a review of bank rules earlier in March, saying they aimed to address concerns that current standards may constrain lending .

(Reporting by Phoebe Seers, Editing by Iain Withers, Andrei Khalip and Louise Heavens)

((phoebe.seers@thomsonreuters.com))