SVB collapse: US rate hikes raise risks for banks, emerging markets, top Chinese officials warn

Name: Silicon Valley Bank collapse stuns tech firms around the world, global operations dismantled
Uploaded: 2023-03-19T10:19:37.000Z
Duration: 2 min 30 s
Description: Silicon Valley Bank collapse stuns tech firms around the world, global operations dismantled

Countries must watch for financial dangers with global high interest rate scenario likely to continue, Xia Xiande, China’s finance vice-minister, says

Silicon Valley Bank’s (SVB) fate shows how financial institutions may fail to adapt to ‘tightening cycle’, People’s Bank of China deputy governor Xuan Changneng says

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Silicon Valley Bank collapse stuns tech firms around the world, global operations dismantled

Amanda Lee

Published: 6:19pm, 19 Mar 2023Updated: 2:22pm, 21 Mar 2023

Rising US interest rates could trigger financial risks and volatility in developing markets, China’s central bank and senior finance officials have warned, days after the sudden collapse of California’s Silicon Valley Bank (SVB).

Addressing an industry forum in Beijing on Saturday, Chinese finance vice-minister Xia Xiande said market entities that had expanded rapidly – such as those with high leverage and mismatched assets and liabilities – faced rising risks, triggering a crisis of confidence in the US financial system.

“Recently, some banks in the United States and Europe, such as SVB, have been in trouble. The global high interest rate environment will continue in the future, and the need for countries to prevent financial risks has gradually emerged,” Xia told the event organised by the Beijing-based think tank, Global Asset Management Forum.

Xuan Changneng, a deputy governor at the People’s Bank of China (PBOC), said financial institutions long used to arranging assets and liabilities in a low interest rate environment lacked the sensitivity to adjust their position for a tightening cycle.

The characteristics of SVB’s balance sheet made it more sensitive to changes in interest rates and ultimately triggered a risk event

Xuan Changneng

“The characteristics of SVB’s balance sheet made it more sensitive to changes in interest rates and ultimately triggered a risk event,” said Xuan, the first Chinese central bank official to comment on the bank’s failure, which has shaken the US financial system.

“There is still uncertainty about whether inflation in the major developed economies will fall significantly in the short term, and continuing to maintain relatively high interest rates may have an adverse impact on the steady operations of the banking and financial system.”

The US Federal Reserve has raised interest rates several times since March last year to tame soaring inflation, but analysts expect the SVB crisis could affect the US central bank’s monetary policy.