The recent collapse of US regional banks might not grow into a global financial crisis given their small scale and less complex assets, but more peers might turn into zombie banks if not properly regulated, the central bank said on Facebook.
Silicon Valley Bank’s (SVB) bankruptcy might not lead to a systemic crisis like Lehman Brothers, the fourth-largest US investment bank before its failure in 2008 set off a global financial storm because it held many highly leveraged derivative financial products and almost all assets were sold off in the financial markets, it said.
SVB, ranked 16th, pales in comparison with large US banking institutions that have assets exceeding US$1 trillion, it said.
Photo: Reuters
Further, SVB has a simple, albeit heavy exposure to US Treasury bonds and mortgage-backed securities, it said, quoting comments by US Nobel laureate in economics Paul Krugman.
Rather, the collapse of SVB, Silvergate Bank and Signature Bank, as well as the cash-strained First Republic Bank, bears a resemblance to the savings and loan crisis of the 1980s, it said.
The savings and loan crisis occurred after the US Federal Reserve raised the discount rate to 12 percent to reduce inflation, dealing a blow to savings and loan associations (S&Ls) that had provided long-term mortgages at fixed interest rates lower than the mandated rate for low-income households.
The rate hike raised funding costs while home values declined and the S&Ls could not attract adequate capital from deposits and savings accounts, it said.
Attempts to attract more deposits by offering higher interest rates led to liabilities that could not be covered by the lower interest rates at which they had loaned money, it said.
The end result was that about one-third of S&Ls became insolvent and the US had to spend more than US$160 billion of tax money to bail out more than 1,000 S&Ls between 1980 and 1995, it said.
SVB had to sell government bond holdings whose value plunged following a spate of interest rate hikes, while unable to attract deposits to solve a liquidity trap, it said.
The lossmaking practice triggered a bank run and its bankruptcy, it said.
Loose regulatory forbearance is also to blame for SVB’s failure, the central bank said.
SVB was overreliant on tech start-ups and engaged in questionable practices, such as offering expensive wine and skiing trips to woo customers, it said.
The crisis linked to US regional banks might have subsided, but the number of zombie banks might spike if US regulators fail to address the root problem, it said, citing The Economist.
Japanese technology giant Softbank Group Corp said Tuesday it has sold its stake in Nvidia Corp, raising US$5.8 billion to pour into other investments. It also reported its profit nearly tripled in the first half of this fiscal year from a year earlier. Tokyo-based Softbank said it sold the stake in Silicon Vally-based Nvidia last month, a move that reflects its shift in focus to OpenAI, owner of the artificial intelligence (AI) chatbot ChatGPT. Softbank reported its profit in the April-to-September period soared to about 2.5 trillion yen (about US$13 billion). Its sales for the six month period rose 7.7 percent year-on-year
CRESTING WAVE: Companies are still buying in, but the shivers in the market could be the first signs that the AI wave has peaked and the collapse is upon the world Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday reported a new monthly record of NT$367.47 billion (US$11.85 billion) in consolidated sales for last month thanks to global demand for artificial intelligence (AI) applications. Last month’s figure represented 16.9 percent annual growth, the slowest pace since February last year. On a monthly basis, sales rose 11 percent. Cumulative sales in the first 10 months of the year grew 33.8 percent year-on-year to NT$3.13 trillion, a record for the same period in the company’s history. However, the slowing growth in monthly sales last month highlights uncertainty over the sustainability of the AI boom even as
BUST FEARS: While a KMT legislator asked if an AI bubble could affect Taiwan, the DGBAS minister said the sector appears on track to continue growing The local property market has cooled down moderately following a series of credit control measures designed to contain speculation, the central bank said yesterday, while remaining tight-lipped about potential rule relaxations. Lawmakers in a meeting of the legislature’s Finance Committee voiced concerns to central bank officials that the credit control measures have adversely affected the government’s tax income and small and medium-sized property developers, with limited positive effects. Housing prices have been climbing since 2016, even when the central bank imposed its first set of control measures in 2020, Chinese Nationalist Party (KMT) Legislator Lo Ting-wei (羅廷瑋) said. “Since the second half of
Tax revenue from securities transactions last month increased 41.9 percent from a year earlier to NT$30.3 billion (US$975.8 million), rising on an annual basis for the third consecutive month and marking the highest for the month of October as Taiwanese stocks continued to perform strongly, data released by the Ministry of Finance showed yesterday. Last month, the TAIEX surged 2,412.81 points, or 9.34 percent, marking its largest-ever monthly rise for October as market sentiment was buoyed by a nearly 15 percent gain in contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which accounts for more than 40 percent of the
RSS