"SVB Crisis, Need to Preemptively Assess Impact on Banks and Startups"...Political Circles Also on Alert

Joo Ho-young "Concerns Rising Over Repeat of 2008 Financial Crisis"
Yoo Kyung-jun "Must Closely Monitor Impact of US Base Interest Rate"
Lee Yong-woo "Need to Check Management of Domestic Banks' Loan-to-Deposit Ratios"

Regarding the bankruptcy news of Silicon Valley Bank (SVB) in the United States, the political circle has called for maintaining the stability of the domestic financial market. While cautiously analyzing that the impact of this bankruptcy on the domestic market is limited, the atmosphere is one of closely monitoring the ripple effects of SVB's bankruptcy?the second largest bank failure in history after Lehman Brothers?on interest rates and other factors.

Joo Ho-young, floor leader of the People Power Party, is speaking at the Supreme Council meeting held at the National Assembly in Yeouido, Seoul on the 13th. Photo by Hyunmin Kim kimhyun81@

Joo Ho-young, floor leader of the People Power Party, said at the People Power Party's Supreme Council meeting, "SVB, ranked 16th in assets in the U.S., has gone bankrupt. Concerns about a repeat of the global financial crisis that began with the 2008 Lehman Brothers bankruptcy have increased," warning, "This bankruptcy carries significant implications for domestic banks as well." Floor leader Joo added, "SVB's bankruptcy reportedly occurred amid an excessive amount of money circulating in the market, with massive deposits pouring in, combined with the U.S. Federal Reserve's rapid interest rate hikes and a downturn in the tech industry. Our banks also have large deposits and enormous real estate loan volumes, so the overall trust in the financial market is not in a healthy state. Given South Korea's high external dependence, volatility in overseas markets easily leads to domestic financial market instability, such as stock price declines and exchange rate increases, which in turn affect the real economy. Therefore, we must be even more cautious." He urged, "Financial authorities should monitor the aftermath of the SVB incident and implement comprehensive measures and monitoring to ensure that trust in Korea's financial system does not collapse."

[Image source=Yonhap News]

Sung Il-jong, chairman of the People Power Party's Policy Committee, said at the meeting, "Within the U.S., it is being suggested that risks are greater for small banks and the startup industry rather than large banks, and uncertainty has also increased ahead of the Federal Reserve's interest rate decision in March." He requested, "The government should focus all its capabilities on preemptively checking the impact on domestic banks and major startups, and prepare all possible countermeasures, rather than concentrating solely on post-event responses, given the unknown effects of financial market volatility and uncertainty on the domestic market."

Jung Woo-taek, Deputy Speaker of the National Assembly (People Power Party), said in a separate press release, "The possibility of the U.S. SVB collapse spreading to the domestic financial market cannot be ruled out," adding, "This incident should serve as a trigger to closely monitor domestic and international financial conditions and take preemptive measures to minimize shocks."

Yoo Kyung-joon, a People Power Party lawmaker, told this outlet in a phone interview, "In the case of venture companies, there may be liquidity shortages due to inability to recover funds, but since the U.S. employment situation is moving in a positive direction, the situation will show a complex pattern intertwined with interest rate hikes." He added, "Since the U.S. government has decided to guarantee SVB deposits for now, it is unlikely to have a major impact domestically. However, because South Korea is still facing liquidity shortages in special purpose companies (SPC) and project financing (PF), it is important to closely watch U.S. interest rates and their influence on Korean interest rates."

Lee Yong-woo, a member of the Democratic Party of Korea, explained, "We need to observe the situation further, but fundamentally, this incident occurred because SVB aggressively accepted deposits without sufficient lending opportunities." He added, "Investing the surplus funds in long-term government bonds due to poor loan-to-deposit ratio management indicates a failure in asset-liability management (ALM)." Lee said, "Since the amount of deposits protected by deposit insurance is small, companies that deposited funds in SVB are likely experiencing liquidity shortages. South Korea should also check the loan-to-deposit ratios in banks' liquidity management."