Letters | SVB’s collapse should prompt Hong Kong to review bank stress tests
- Readers discuss how the city should react to the largest collapse of a bank since the financial crisis, and the suspension of in-town check-in services at Airport Express stations
The Federal Reserve began the process of monetary policy tightening by raising its benchmark interest rate by 0.25 percentage points in March 2022. In less than a year, the US central bank raised interest rates eight times, with a cumulative rate hike of 425 basis points. Such a steep increase in interest rates is unprecedented in the past four decades, and would inevitably have a significant impact on American financial institutions.
Given the current trend of US inflation and Fed chair Jerome Powell’s statement last week, the pace and extent of interest rate hikes in 2023 may again exceed market expectations. This means that the asset price adjustment in US stock and bond markets may not be over yet, and investors in the United States and other countries may continue to suffer large-scale losses.
The resulting capital loss and liquidity pressure may once again trigger the risk of bankruptcy and liquidation of financial institutions. Emerging markets and developing countries may also see currency and financial crises again.
With the tightening of monetary policy in the United States, the scale of new venture capital investment dropped significantly, resulting in innovative companies having to turn to their own deposits, which has led to the rapid contraction of SVB’s debit side.
SVB’s announcement that it had sold part of its portfolio – which included around US$100 billion in bond investments – at a loss caused panic among depositors, who withdrew large amounts of cash one after another, resulting in a bank run.