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The bankruptcy of some American banks cannot create a financial crisis

10:24 | 23/03/2023

VCN – The recent collapse of several small and medium-sized US banks has raised concerns about the possibility of a financial crisis. However, according to experts, this event did not create the world financial crisis as feared and, at the same time, did not have much impact on the domestic stock market.

According to C&W, at this stage, keeping investors on the sidelines and watching can be a good strategy. Source: Internet
According to C&W, at this stage, keeping investors on the sidelines and watching can be a good strategy. Source: Internet

Financial crisis will not repeat

Silicon Valley Bank (SVB) - the 16th largest commercial bank in the US, fell into a liquidity crisis on March 10, 2023, followed by Signature Bank and Silvergate Bank. These are three of the 4,236 US commercial banks the Federal Deposit Insurance Corporation (FDIC) sponsored.

The three banks that just collapsed mainly focused their deposits and loans on technology (SVB bank) and cryptocurrencies (Signature bank and Silvergate bank).

According to experts of global real estate consulting firm Cushman & Wakefield (C&W), this is not a repeat of the great financial crisis. The picture of a crisis is still unclear, but a deep intervention by regulators could potentially help prevent the consequences from spreading.

According to C&W, the assets of SVB and Signature Bank are US$209 billion and US$118 billion, respectively, much less than the more than US$9 trillion owned by the four largest US banks during the Great Recession of 2008.

Besides that, the current economic fundamentals are much stronger than during the great financial crisis. The financial system is also more resilient to the global financial crisis. The banking system has undergone major reforms to prevent the same situation from happening again. As a result, banks are more capitalized and better protected against bad situations.

More importantly, the policy agency has also moved to react faster than in the crisis era. For example, although SVB officially collapsed on March 10, 2023, just two days later, the Treasury Department and the US Federal Reserve (FED) established an emergency credit facility for banks facing liquidity issues, protecting all deposits and providing initial confidence in the market.

Regarding the impact on the market, according to C&W's forecast, banks will continue to tighten lending to ensure capital risk reduction. At the same time, making sure that the US Federal Open Market Committee (FOMC) will have to recalculate monetary policy at its next meeting on March 21-22, under the failures of banks. The collapse of these banks could dampen the outlook for interest rates for the rest of the year.

According to C&W, at this stage, the market sky is only murky but not collapsing. During times like these, C&W thinks that keeping investors on the sidelines and watching can be a good strategy.

Little impact on the systemic risk of Asian markets

Regarding this incident, VNDIRECT Securities Company added two days after the collapse of SVB, a term funding program with a scale of US$25 billion was launched by the Fed to provide loans up to one year with collateral as US government bonds and loans at par. At the same time, the Fed, Treasury Department and the FDIC also activated a special exception, allowing protection of deposits larger than US$250,000.

This is one of the measures to reassure depositors and reduce systemic risks. However, as observed by VNDIRECT, risks are still present and concentrated in several small US commercial banks as liquidity and reserve ratio decline.

According to VNDIRECT, the market expects FED to reduce the intensity of interest rate hikes to save banks. The collapse of SVB is putting the Fed in a tough situation. On the one hand, it is still under pressure to raise operating interest rates to curb inflation. Meanwhile, continuing to raise interest rates may push financial institutions into a dangerous situation. Therefore, the market expects that the FED will reduce the intensity of interest rate hikes and start reducing the operating interest rates from quarter 4/2023, earlier than the previous forecast of quarter 1/2024.

VNDIRECT assessed that the impact of the SVB event on Asian finance is not major. According to regional experts, the current SVB crisis has little impact on the systemic risks of Asian markets, including Vietnam, largely thanks to the stable recovery of the Chinese economy.

China's real estate-credit market had passed the most difficult period when home sales started to grow positively from February 2023. On the other hand, the USD is expected to be weaker after the SVB event, which is also a positive factor for emerging countries.

Assessing the impact of this collapse on Vietnam's stock market, this unit maintains a cautious view in the first half of 2023. Accordingly, in Vietnam, Resolution 33/NQCP was just approved on March 11, 2023, which noted the problem of restructuring the debts of real estate enterprises. This is one of the most anticipated market news in recent times.

Besides that, the foreign capital inflow from ETFs is estimated at around VND 4 trillion and is expected to enter Vietnam will also be a positive factor for the domestic market.

"We still think that in the first half of 2023, the VN-Index's uptrend will be quite fragile and unstable in the context of low liquidity, pressure on interest rates, exchange rates and solvency tests for corporate maturity bonds are still there. Therefore, investors need to be very cautious in using leverage and observe the next movements of the world market. Priority should be given to "defensive targets" in the short term with groups of value stocks or attractive dividends", experts of VNDIRECT recommended.

Commenting on this event, banking and finance expert Nguyen Tri Hieu said that the collapse of SVB US bank had not had an impact on the global financial system yet. According to expert Nguyen Tri Hieu in Vietnam, this incident will not directly affect Vietnam's financial situation.

By Hoài Anh/Thanh Thuy