China must ‘reflect’ on the collapse of Silicon Valley Bank, keep a watchful eye on liquidity
- Lu Lei, deputy head of the foreign exchange regulator, says China must pay close attention to overall liquidity in the financial sector
- China’s economy and banking system are largely insulated from recent banking stress in the US and Europe, according to BNP Paribas
Chinese regulators should reflect on the sudden collapse of Silicon Valley Bank (SVB) by improving their risk detecting ability, said a senior official from the foreign exchange regulator.
The failure of SVB and Signature Bank, along with trouble at Credit Suisse and Deutsche Bank in Europe, have highlighted uncertainty in the global banking sector and elevated financial de-risking on Beijing’s work agenda this year.
“We should reflect on why crises such as the SVB [collapse] were not foreseen,” Lu Lei, deputy head of the State Administration of Foreign Exchange, said at a panel discussion at the Boao Forum for Asia on Wednesday.
“There are constantly new issues that need to be tackled. We are in a turbulent financial world,” said Lu, who previously served as head of the financial stability and research bureaus at the People’s Bank of China (PBOC).
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Lu said financial and economic stability must be balanced, which includes appropriate levels of economic growth and inflation. Maintaining stability also required central banks to pay close attention to overall liquidity in the financial sector, he added.
BNP Paribas said in a report released on Wednesday China’s economy and banking system are largely insulated from recent banking stress in the US and Europe.
“Chinese policymakers’ campaigns against financial risks in the past five years and the PBOC’s cautious monetary policy stance have improved the health of the country’s banking sector,” it said.
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Although criticised for being excessive, the deleveraging campaign in the property sector that began in 2020 highlighted authorities’ intent to pre-emptively rein in financial risks, the French investment bank said.
As the state of the property sector – which is the biggest borrower from banks – is improving alongside a broader economic recovery this year, the overall credit risks of Chinese banks will ease, it added.
The major risks in the country’s banking sector come from smaller city and rural commercial banks, the report said.
According to the PBOC’s risk assessment of 4,398 financial institutions in the fourth quarter of 2021, there were 316 high-risk institutions, most of which are small urban and rural commercial banks, representing 1 per cent of total bank assets in the country.
