Emergency Meeting on Macroeconomic and Financial Stability

Government Monitors and Braces for Impact of SVB’s Collapse

Deputy Prime Minister Kyungho CHOO presided over the Emergency Meeting on Macroeconomic and Financial Stability[1] on March 14 to review the global financial market situation in the wake of Silicon Valley Bank (SVB)’s collapse and the U.S. Department of the Treasury and Federal Reserve’s major actions to calm the market. In addition, they closely examined the impact of SVB’s collapse on the domestic financial market and institutions, and discussed future policy response directions.

The following is a summary of DPM CHOO’s remarks.

The global financial market situation following SVB’s collapse

In the wake of SVB’s collapse last weekend, global financial market distress has spread throughout the globe, prompting each country’s government to take steps to stabilize the market. In response to the collapse of Signature Bank following the fall of SVB, the U.S. Department of the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) jointly announced a new Bank Term Funding Program (BTFP) last weekend.

In addition to the U.S. where SVB is headquartered, other countries where SVB’s branches are located have swiftly coped with fallout of SVB’s collapse.

For example, the UK’s HM Treasury announced that HSBC acquired Silicon Valley Bank UK Limited (SVB UK) and managed to ensure the continuity of banking services and is seeking measures to provide liquidity support for start-ups. Other governments of countries such as Canada, Israel and India are also working to devise similar measures.   

Despite these efforts to shore up the market, the global financial market saw mixed sentiment overnight. Amid preference for safe assets continuing, the market expected the Federal Reserve to slow down interest rate hikes. U.S. treasury rates sharply fell, leading to weaker dollar, and major stock indices ended mixed.

SVB’s collapse stemmed from financial instability in the vulnerable sectors as a result of continued intensive monetary tightening policies aimed at taming high inflation. Acknowledging the difficulties of predicting fallout of SVB’s collapse at this juncture, the government will thoroughly monitor its potential impact on the domestic market.

Examination of potential impact of SVB’s collapse on the domestic market

The Korean financial market appears to remain stable. Both KOSPI and KOSDAQ slightly rebounded driven by foreign capital inflows following major countries’ steps taken to deal with the market stress. Korean government bond yield sharply declined as investors showed stronger preference for safe assets and expectations for tight monetary policy across the globe weakened.

Although the market situations require continued monitoring going forward, the impact on the domestic market seems to be limited at the moment.        

Domestic financial institutions have a different structure of assets and debts from that of SVB and also have a healthy liquidity position and sufficient fundamentals to withstand a temporal shock.

In addition, as the exposure of major domestic financial institutions (ex. domestic banks) and investors (ex. Korea’s four public pensions, the Korea Investment Corporation (KIC) and Korea Post) doesn’t appear to be that high, the direct impact on the domestic market is expected to be limited as of now.

Nevertheless, as the global financial markets stumbled at a time when the global economy still struggles to curb inflation, the possibility of heightened volatility cannot be ruled out going forward. Against this backdrop, the Korean government and relevant organizations will go all out to maintain financial market stability by staying vigilant to respond to current uncertainties.

In addition, the government will closely monitor market situations at home and abroad by operating a joint monitoring system 24 hours a day and manage potentially risk-causing factors in the financial system. It will also swiftly implement financial market stabilization measures in coordination with relevant organizations if necessary.   

Please refer to the attached pdf.