Macroscope | In the wake of Silicon Valley Bank and Credit Suisse’s fall, Asian banks are no safe haven

The collapse of three mid-size American banks and rescue of a systemically important European bank in a fortnight have roiled the global banking system

While rating agencies have pointed to the underlying strengths of Asia-Pacific banks, the region is not immune to the turmoil

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A woman walks past an electric monitor displaying recent stock price movements outside a bank in Tokyo on March 22. Since SVB plunged into crisis, Japan’s Topix Banks Index has lost 15 per cent. Photo: Reuters

Published: 3:45pm, 23 Mar 2023

For the past year, the most important threat facing the global economy and markets has been the persistence of high inflation and the risk of a sharper-than-expected tightening in monetary policy, according to the findings of Bank of America’s monthly fund manager survey.

At the start of this year, a “systemic credit event” – a crisis at the corporate level that triggers severe instability in an entire industry or economy – did not even figure in the top four “tail risks” cited by respondents to the survey and was viewed as only slightly more threatening than a resurgence of the Covid-19 virus.

The results of this month’s poll, however, which were published on Tuesday, showed that systemic risk surged to the top of the list of investors’ concerns, while fears about persistently high inflation receded.

The sudden loss of confidence that has led to the demise of three mid-sized American banks, precipitated the emergency rescue of a systemically important European bank and left another US lender on the brink of collapse in the space of a fortnight has plunged the global banking system into turmoil.

The speed, scale and severity of the crisis have ominous echoes of the 2008 financial crash, even though the causes of today’s bank runs – as well as the economic backdrop – are very different. These differences have encouraged banking analysts to treat the current vulnerabilities as a set of idiosyncratic shocks that limit the scope for widespread contagion.

Yet, just because a 2008-style crisis is not on the cards does not mean that the dramatic collapse of start-up lender Silicon Valley Bank (SVB), formerly the US’ 16th largest bank, and the shotgun takeover of troubled Credit Suisse by its stronger domestic rival UBS are not consequential for the global banking system, and broader financial conditions.

.css-1m2rp1p{color:#34b8b5;}Macroscope | In the wake of Silicon Valley Bank and Credit Suisse’s fall, Asian banks are no safe haven

Macroscope | In the wake of Silicon Valley Bank and Credit Suisse’s fall, Asian banks are no safe haven