TSE Pods
TSE Pods
Economics To The Rescue ep 1: Banking Dominoes: Unraveling Western Collapse and Asia's Ripple Effect - Part 1
This episode delves into the global banking crisis and its impact on Asian economies, with students discussing the issue based on their limited knowledge. While Asia is somewhat insulated from the Western banking collapse, areas of vulnerability exist, particularly for globally integrated lenders, as tighter liquidity conditions may affect borrowing and demand for Asian exports, posing risks to the region's economic growth outlook for 2023.
Ellie
Welcome to TSE pods. Today we will have a new series that titled Icon to the Rescue. In this series, we will talk about the world crises that happen in many aspects and competition within countries, and it tends to lead into economic convergence. The process continues as delivering countries economies become more similar or related and in this episode we will talk about the banking dominoes. It is about the unraveling Western collapse and Asia's rise. So, ladies and gentlemen, stay with us in encounter the rescue economic matters. Hello, I'm Ellie Ophelia. I came from Indonesia and I took economic development as my major. Now I took my bachelor degree in business management in Taiwan in one of the private university here. I guess that's all about me. Thank you.
Sasitha
I'm from Sri Lanka and I'm a second year master student of Taipei School of Economics and Political Science. I did my bachelors in economics and I worked as a research assistant for a think tank in my country.
Quinton
I'm a Poly science student, an Australian lawyer and bachelor and majoring in nanotechnology I. I studied this course because I enjoy observing the political issues around the world which impacts daily life, and I would like to investigate why it is and what made it be great. OK. So today we're going to talk about the Silicon Valley Bank collapse and their two friends Signature Bank and First Republic. And how it kind of rippled on to Credit Suisse? And whether or not we think maybe it will affect Asia and yeah, well, let's, let's talk about it.
Sasitha
Yes, Quinton, three major banks in the US fell amid fears of everyone. Also, it followed up by a giant fell in Switzerland. Credit Suisse. Like people worried that it will be as bad as 2008 financial crisis, and similarly the government had to rescue. But this was wasn't as bad as the 2008 crisis, because government somehow could help the could rescue. These banks. So that's, yeah, they they had to. Yeah. They had to make rescue deals with.
Quinton
Did you rescue these banks?
Sasitha
Federal federal government and somehow they bailed out. They were, they were bailed out by the government. So it in that way. It's similar to 2008 financial crisis. But the reasons, as I think as I see are much different than 2008 credit crisis. So as according to my view, I think most the major issue for this crisis is the sudden increase of the. Interest rate. So us keep their interest as very low, then suddenly to fight the inflation, they increased their interest rate.
Quinton
They just went.
Sasitha
Skyrocket. Yeah, they skyrocket interest rate. So at that point, the in Silicon Valley Bank is supporting the tech startup mostly. So those startups, they couldn't finance their activities at least like to repay their debts. Ohh yeah. Yeah. So they couldn't really.
Ellie
Yeah.
Quinton
Yeah, so they defaulted.
Sasitha
Yeah, mostly they they wanted to use their deposits for their activity day activities. So they went to.
演講者
OK.
Sasitha
Silicon Valley Bank, which they have their deposits, they then they keep withdrawing the deposit and Silicon Valley, that's not the reason that another thing I want to mention is after the interest rate increase, the bond government bond values were values of the government bonds were decreased because. They were bought by Silicon Valley Bank at a lower interest rate now. Now, once the interest rate increase, the new bonds have better value. So the once they have their value decreased. Yeah. So the to facilitate these.
Quinton
Oh yeah.
Sasitha
Withdrawals Silicon Valley Bank had to sell their bonds at a lower price, marking them as a loss, so this further wasn't the case. And speculators look at the share value goes down and they keep taking their deposit. Back to them. So this was the major reason as I think happened for Silicon Valley Bank and Signature Bank First Republic Bank. I think most of them were because of the herd mentality. People try to take their credit. They are you. Know. Deposits back those it was like.
Quinton
Quite popular news in those days, and there were like episodes made. On TV, which interviewed people I remember like lining outside of these banks saying, you know, what are you here for? And they're like, I'm getting my money out because I hear that they're gonna if I don't do it now, I won't get my money out anymore. Yeah, there was panic withdrawals. Yeah. Yeah. So. And then later on the. The the authority governing these banks, the Federal Deposit Insurance Corporation. Yeah, they intervened, FDIC. And I think they struck well. They went to receivership or.
Sasitha
FDIC.
Quinton
Or somehow taking custody of the banks, right. Yeah. And then?
演講者
Hmm.
Quinton
Yeah, they they basically froze all the deposits. So to stop people withdrawing and devaluing these commercial or would they, would they be commercial or retail?
Sasitha
I think most commercial Russian and yeah, and most of the deposits like only insured up to 250,000 USD. Yeah. So people like most of those investors as in like depositors, they had more than that. They were like Silicon Valley textiles. They had more than that. So they were very panicked about that.
Quinton
Come back. Yeah, quarter million, yes.
Sasitha
So.
Ellie
So do you think is it significance of like one person failure? Yeah. Like is it like because of a lot of people infest in this bank or is just because one person have a lot of asset in that bank.
Quinton
No, it was. I'm I'm not quite sure. I think it's because like, imagine yourself having, you know, let's say you have $1,000,000 in the bank and then one day the bank you hear rumors that the bank is closing down or you needed that money. And by the time you withdrew it or you, you just couldn't take it out anymore because the bank would say no. Naturally, if you wanted to withdraw a big lump sum of money. The banks will stop you, but this time they were for real. They couldn't stop. They they stopping you because you know the regulations telling them to stop you, right? And that's even worse and you know, keen investors who bank with these banks with that much money. Would definitely smell something wrong.
Sasitha
Yeah, and. The Silicon Valley bank, right before they collapse for eight months, they didn't have a risk management. The main major guy where he wasn't there so and also what I think is because one of the main reasons they lost, they lost money was they born very fails right. So their investments were not very diversified.
Quinton
Yeah.
Sasitha
Enough to manage the risk.
Quinton
Oh, yeah, yeah. I think they had a hiatus of that compliance guy. Yeah. Yeah. Because each bank had to assign a compliance guy and. So the person who's supposed to be on this job, I think quit like a year ago or something. Like for for a long time. Let's say, just for a long time. And so, you know.
Sasitha
Phone.
Quinton
The bank should. Really not be running was one of the. Comments.
Sasitha
One of the major guys, right, like resentment, is one of the major things.
Quinton
Yeah, yeah. Yeah, and this was I think after like 2 turnovers of the compliance guy. Yeah, it's pretty crazy. Imagine if your bank ran like that. Yeah.
Ellie
So I guess diversified also one of the reason, right, so do you think Silicon Valley Bank is less diversified than other bank in America?
Sasitha
I'm not quite sure. But. When I look at the numbers, I can't remember exact numbers, but the value the the amount they lost just because of the decrease of one values was like.
Ellie
So big.
Sasitha
Yeah, too big. And they have to sell their bonds at the lower price market, try to repay what they can because they people keep coming. Kept coming to take their money back, so they had to sell. So I mean, if they had more diversified or other places they could have sold those, right. But as I as I saw there was nothing like that and I think us after 2800 crisis, they tried the most of the blame. We went to, we went to the regulators, one who. Thanks. Credit rankers. They had been ranked the stocks well like that. So I think I thought us learned the lesson, but from what we see, we see like major banks like Silicon Valley Bank, which kind of runs the Silicon Valley. Which is a major part of American economy and still we're not regulated enough if they if the top managers were not there, that's that's what I think this might. Of that.
Quinton
Yeah, yeah. But they're not ranking like these were treasury bonds, weren't they? They were like, they weren't even like.
演講者
OK.
Quinton
Crappy stocks bunched together and dated together to sell together at AAA rating, they were just, you know, U.S. Treasury bonds, right?
Sasitha
Yeah, yeah.
Ellie
Yeah, yeah.
Sasitha
I don't know. I'm I'm talking about. I talked about the 2008 financial credit crisis, right? So that that was.
Quinton
Yeah. So the regulation is different because coming from a legal background.
Sasitha
Yeah. Yeah. Here, here, now. It should. They should speculate, like how banks work, right? Do they have the standards? Like, I I don't think a bank can run if they don't have a risk management team can.
Quinton
There are different. Yeah.
Sasitha
Should they like that there should be like.
Ellie
They are not careful enough when they already have.
Quinton
Yeah. Yeah, yeah, yeah, I guess this is like traditionally, governments were really scared of banks not having enough money in their bank to, I think, to to leverage it 22 times. At least that's on my credit card. Of their actual income or deposit, right, but now they have to go a step further to say, OK, let's look at your portfolio and if you don't have the proper people's proper portfolio, then we'll have to force. To to close down. But then there's also no. Not such a strong self reporting regime. I guess that's how they probably slipped through the cracks. Yeah, which is very common in any country around the world.
Sasitha
Yeah, that's was my next question to you. Like, do you think something like this could happen in Asia and like what's the effect of this in Asia?
Quinton
Yeah, funny you say that you first went to Europe, right? Yeah. So I think Ellie has something on this.
Ellie
I guess what will happen in Asia? Will be not that big like in America, like it will have some not direct effect but. It can happen like like what happened in 2008? Is it actually? Everything is OK in Asia and then suddenly it's happening in America and everything is getting the ripple effect. So what do you guys think?
Quinton
Well, to kind of answer my own question, you went to Europe first. I think it's because all of the money around the world kind of goes to the safe havens, which, yeah, Switzerland is a big banking nation and. I believe they lost a lot of money because of this and also because Credit Suisse was. Was not properly managed to to a profit, so it actually underwent many reviews and I think. Buyouts initially until the time that you know this, this crisis happened. So SVB, SB and First Republic Bank, they all went bust. And somehow it rippled on to Credit Suisse because people the saying is that if you're so rich to bank. With SVB, then you probably have some banking in Credit Suisse, so. It just rippled on. And then with that ripple, they had no choice but to. Well, the government had no choice but to intervene. So I think they strong armed or the rumor is that they strong armed UBS to buy out and or merge with Credit Suisse so that they can keep that. That ball running.
Sasitha
So talk about the impact on Asian economy. I don't think there. I mean as most analyst, there won't be a major impact on Asian banking like with this with this event because then about 90% of Asian banks are funded by domestic loans. So the the credit crunch in West won't directly impact Asian banks in the similar manner, but. In terms of economic activities, there can be a indirect impact. What do you think about that? Acquainted.
Quinton
Yeah. It will definitely impact the global economic activities, especially if, say, I ran a business. I sell T-shirts, IW want to sell to. Somewhere in Europe, say, Germany, and it has to go through and my trusted bank is UBS or Credit Suisse then. You know they're. They're probably not gonna pay out of that because of the issues, because they've they've gotta hedge whether or not it's worthwhile paying out of UBS or Credit Suisse, right? So they have to at least spend what 3 hours wondering whether or not to pay me out of there or through Germany. Borrow money to me from some other bank to Taiwan and that is transactional and time delay which? Translates into slow down. Cash flow, right and that will in turn make my bank I'm happy because if I have a commercial loan then they will be looking at my. Accounts receivables before they want to extend or continue that loan with me. So then my suppliers will be a bit unhappy because I'm going to tell them I have to pay them a day late or two. Days. Late things like that and that will definitely knock on. Correct, you agree.
Sasitha
Yeah, yeah. So we can say like Asia is for now insulated, but it's not immune for the similar crisis.
Quinton
Right. Yeah. I think it will slow down. But won't crash.
Ellie
OK guys, but I'm still confused and maybe our opinion can be wrong or inaccurate. So let's us the big guy next time we can talk to our professor about it, about the collapse, about the Asia effect or anything or reason behind this. Seven. OK. So let's see the next episode.
Quinton
This is the end of our episode. If you want more from us, Cecita Allie Quinton, leave a message with us. We'll appreciate it if you subscribe and follow us at NTH Utse parts. Bye.
