18th March 2023 – (Beijing) The swift and unforeseen demise of Silicon Valley Bank (SVB) has raised concerns about the potential spillover effects of monetary policy shifts, according to a high-ranking official at the People’s Bank of China. Xuan Changneng, a deputy governor at the People’s Bank of China, noted at the Global Asset Management Forum in Beijing that some financial institutions had become accustomed to low interest rate volatility, and therefore lacked the necessary sensitivity to fluctuations in rates, particularly over the short term.
Furthermore, the characteristics of SVB’s balance sheet rendered it particularly susceptible to changes in interest rates, thereby exposing it to heightened risk, the Shanghai Securities News reported, citing Changneng’s remarks. He went on to add that the present uncertainty surrounding whether inflation in major developed economies will decrease significantly in the short term, coupled with the potential adverse impacts of maintaining relatively high interest rates on the stable functioning of the banking and financial system, leave much to be desired.
In a related development, SVB Financial Group has filed for protection under Chapter 11 of the U.S. bankruptcy code, hot on the heels of its former unit, Silicon Valley Bank, being taken over by U.S. regulators. The broader implications of these events for the banking sector remain to be seen.