Chinese Official Cites SVB Collapse as Evidence of Hazardous Effects of Rapid Monetary Policy Shifts
TEHRAN (Tasnim) – An official from the People's Bank of China commented on the collapse of Silicon Valley Bank (SVB) on Saturday, stating that rapid monetary policy shifts in developed economies are having hazardous effects on financial stability.
Xuan Changneng, a deputy governor at the People’s Bank of China, spoke at the Global Asset Management Forum in Beijing, highlighting that some institutions grew too used to buying assets in a low interest-rate environment and lacked the foresight to position for tightening cycles.
SVB’s balance sheet made it more vulnerable to such hikes and led to its failure, he said.
Xuan further stated that the rapid interest-rate increases to contain inflation have brought new risks to the global economy, Bloomberg reported.
With the inflation outlook in developed economies still uncertain and growing risk to financial stability from elevated rates, central banks now face a “dilemma” when making their monetary policy decisions. The official expressed concern that high interest rates will likely persist, so all countries should be on guard for financial risks that could gradually emerge.
The cases of SVB and other regional US lenders that failed are “more one of a kind” and will unlikely have a systemic impact on the US economy, said Howard Marks, co-founder of Oaktree Capital Group. He cited the lenders’ concentration of asset classes, depositors and regions, stating that he doesn't see any analogy to the subprime collapse that led to the global financial crisis.
China’s Vice Finance Minister Xia Xiande told the forum that all countries should be on guard for financial risks that could gradually emerge as high interest rates will likely persist. The ministry will step up its implementation of a proactive fiscal policy this year, including supporting “reasonable” financing needs of local governments, to ensure China’s growth target of around 5% is achieved, he said.
The central bank said on March 15 that China's financial system has been operating stably with risks “controllable” and also vowed to reduce the number of existing high-risk financial institutions and prevent any systemic risks. China is overhauling the regulatory regime for its $60 trillion financial system to better curb risks by setting up an enlarged national regulator.
