10:57
Boom, bust and borrow: Has China’s housing market tanked?
Boom, bust and borrow: Has China’s housing market tanked?
The FSB also highlighted climate-related vulnerabilities, as well as cyber risks. It is spending more time on monitoring the cryptocurrency market.
The key structural issue over global financial stability is that the world’s financial system comprised roughly US$486.6 trillion at the end of 2021, of which nonbank financial institutions (NBFIs) accounted for US$239.3 trillion, or 49.2 per cent of total financial assets. In other words, the world is roughly divided into half banking system assets, which are tightly regulated, and half NBFIs, which are lightly regulated. The FSB has tried to regulate NBFIs but was repulsed by powerful fund managers.
China’s shadow banking crisis could threaten broader economy, analysts warn
China’s shadow banking crisis could threaten broader economy, analysts warn
The FSB’s real fear is that even though the banking system is tightly regulated, regulatory arbitrage could ensure that risks slip into the NBFI area. The run on money market funds during the 2013 “taper tantrum”, for example, underline central banks’ concern that problems in one sector could quickly spread to the banking system through contagion.
02:30
Silicon Valley Bank collapse stuns tech firms around the world, global operations dismantled
Silicon Valley Bank collapse stuns tech firms around the world, global operations dismantled
In hindsight, the extremely loose fiscal and monetary policies during the Covid-19 pandemic created conditions whereby the failed banks were running risks by buying long-term Treasuries that had low credit risk but high duration and interest rate risks. So when the Fed raised interest rates rapidly, these banks became vulnerable.
In every crisis, there are elephants in the room which no one wants to mention. What worries me more about central bank monetary policy and financial stability is the way in which central banks have expanded their “safety net” wider and wider, including using their balance sheets to buy all kinds of assets.
For example, the Fed’s Bank Term Funding Programme is a lender-of-last-resort facility. It was created in March after SVB’s failure to lend to other banks that had big unrealised losses on their holdings of government bonds and were at risk of large-scale withdrawals of deposits.
The facility allows banks to exchange assets such as US Treasuries for cash at their full-face amount, regardless of the current market value. This means any losses will in the end be borne by the Fed, a bailout in effect if not in name.
Andrew Sheng is a former central banker who writes on global issues from an Asian perspective