2023-03-20

Source: Global Times

Editor's note: Recently, the Collapse of Silicon Valley Bank in the United States has swept the headlines of major media around the world. This "star bank" with assets of $209 billion was taken over by the Federal Deposit Insurance Corporation (FDIC) on March 10 and declared bankruptcy. Despite the announcement by the US government that it will take action to support deposits, the shock caused by this turmoil to the world financial system and others is far from over. Large US bank stocks have plummeted, while European bank stocks are also facing severe market turbulence. Credit Suisse, which had previously been trapped in a loss spiral, has exposed significant problems in its internal financial system, causing its stock price to drop by 13.94% on March 15th. How long will this round of shock wave last and how wide will it affect? What does it mean for the Chinese financial market?

Firstly, the possibility of triggering a new round of financial crisis is relatively small, but it may pose significant constraints on the Federal Reserve's policies. The liability side of Silicon Valley Bank is mainly deposits of small and medium-sized technology companies, and the asset side is mainly concentrated in US bonds and MBS (mortgage-backed bonds). The reason for this operation is that banks generally face liquidity surplus after large-scale quantitative easing in the United States. This round of radical interest rate increase has impacted the assets and liabilities of banks to varying degrees. The event has had an impact on global financial markets and the banking industry through direct and indirect channels, but overall, the impact is mainly concentrated in the United States, with limited impact on Europe and the Asia Pacific region. The current liquidity crisis in banks, although the risk of evolving into a comprehensive financial crisis is not significant, it also brings significant pressure. The Federal Reserve may suspend or reduce interest rate hikes to alleviate the spread of risks.

Secondly, the direct impact on China's banking industry is relatively small, but it has important reference value for improving financial governance in China. The event has no direct impact on China's banking industry, but the event also reminds us that the liquidity of small and medium-sized financial institutions will be affected by a variety of factors, and we must attach great importance to the Liquidity risk of small and medium-sized banks. We should take this incident as a reference and strengthen the governance mechanism of financial institutions; Further improving the financial regulatory system, the incident confirms the rationality and necessity of China's strict regulation of encrypted assets; Firmly implement the deposit insurance system and strengthen the management of Interest rate risk and Liquidity risk; Provide more personalized and differentiated risk management guidance for small and medium-sized banks with lower risk resistance capabilities.

Thirdly, the future global capital flow will become more complex, and the Chinese stock market may benefit. The failure of Collapse of Silicon Valley Bank has increased the uncertainty of the U.S. and global markets, and increased people's attention to the risks of the U.S. market. Global capital flows are more complex, and Asia is expected to become an important hotspot of global capital flows. The direct impact of the Silicon Valley Bank incident on the A-share market is relatively limited, but it may make more funds flow to the Chinese market, or some of them flow to the stock market. Especially in the context of rapid economic recovery in China, the return of overseas funds will accelerate in the future, which is beneficial for the development of domestic technology enterprises and manufacturing industry. The Chinese market has become an option for long-term investment.

Fourthly, as small and medium-sized startups face increasing financing difficulties in the US market, they should choose balanced financing through multiple channels. For a long time, the US capital market has been an important financing channel for startups. Although the bankruptcy of Silicon Valley Bank has little impact on start-ups, it will shake Asia's confidence in the Science and technology in the United States financing market, and also cause concern about the tightening of the future financing environment. In the future, startups will face significant difficulties in choosing financing in the US market. Choosing a more balanced financing channel and further expanding their listing and financing in Europe is an ideal choice. The importance of the Asian market will gradually increase in the future, and new science and technology startups can choose to list in cities such as Shanghai, Beijing, and Hong Kong. (The author is Principal investigator of Bank of China and senior researcher of the World Financial Forum)

Source: Global Times

Editor's note: Recently, the Collapse of Silicon Valley Bank in the United States has swept the headlines of major media around the world. This "star bank" with assets of $209 billion was taken over by the Federal Deposit Insurance Corporation (FDIC) on March 10 and declared bankruptcy. Despite the announcement by the US government that it will take action to support deposits, the shock caused by this turmoil to the world financial system and others is far from over. Large US bank stocks have plummeted, while European bank stocks are also facing severe market turbulence. Credit Suisse, which had previously been trapped in a loss spiral, has exposed significant problems in its internal financial system, causing its stock price to drop by 13.94% on March 15th. How long will this round of shock wave last and how wide will it affect? What does it mean for the Chinese financial market?

Firstly, the possibility of triggering a new round of financial crisis is relatively small, but it may pose significant constraints on the Federal Reserve's policies. The liability side of Silicon Valley Bank is mainly deposits of small and medium-sized technology companies, and the asset side is mainly concentrated in US bonds and MBS (mortgage-backed bonds). The reason for this operation is that banks generally face liquidity surplus after large-scale quantitative easing in the United States. This round of radical interest rate increase has impacted the assets and liabilities of banks to varying degrees. The event has had an impact on global financial markets and the banking industry through direct and indirect channels, but overall, the impact is mainly concentrated in the United States, with limited impact on Europe and the Asia Pacific region. The current liquidity crisis in banks, although the risk of evolving into a comprehensive financial crisis is not significant, it also brings significant pressure. The Federal Reserve may suspend or reduce interest rate hikes to alleviate the spread of risks.

Secondly, the direct impact on China's banking industry is relatively small, but it has important reference value for improving financial governance in China. The event has no direct impact on China's banking industry, but the event also reminds us that the liquidity of small and medium-sized financial institutions will be affected by a variety of factors, and we must attach great importance to the Liquidity risk of small and medium-sized banks. We should take this incident as a reference and strengthen the governance mechanism of financial institutions; Further improving the financial regulatory system, the incident confirms the rationality and necessity of China's strict regulation of encrypted assets; Firmly implement the deposit insurance system and strengthen the management of Interest rate risk and Liquidity risk; Provide more personalized and differentiated risk management guidance for small and medium-sized banks with lower risk resistance capabilities.

Thirdly, the future global capital flow will become more complex, and the Chinese stock market may benefit. The failure of Collapse of Silicon Valley Bank has increased the uncertainty of the U.S. and global markets, and increased people's attention to the risks of the U.S. market. Global capital flows are more complex, and Asia is expected to become an important hotspot of global capital flows. The direct impact of the Silicon Valley Bank incident on the A-share market is relatively limited, but it may make more funds flow to the Chinese market, or some of them flow to the stock market. Especially in the context of rapid economic recovery in China, the return of overseas funds will accelerate in the future, which is beneficial for the development of domestic technology enterprises and manufacturing industry. The Chinese market has become an option for long-term investment.

Fourthly, as small and medium-sized startups face increasing financing difficulties in the US market, they should choose balanced financing through multiple channels. For a long time, the US capital market has been an important financing channel for startups. Although the bankruptcy of Silicon Valley Bank has little impact on start-ups, it will shake Asia's confidence in the Science and technology in the United States financing market, and also cause concern about the tightening of the future financing environment. In the future, startups will face significant difficulties in choosing financing in the US market. Choosing a more balanced financing channel and further expanding their listing and financing in Europe is an ideal choice. The importance of the Asian market will gradually increase in the future, and new science and technology startups can choose to list in cities such as Shanghai, Beijing, and Hong Kong. (The author is Principal investigator of Bank of China and senior researcher of the World Financial Forum)