The sudden bankruptcy of an American bank. And information on the deterioration of the business of Credit Suisse, a major Swiss financial group. Over the past week, markets have been greatly shaken by concerns about the spread of credit instability. The market has calmed down somewhat due to the response of the authorities, but the difficulty of responding to the crisis in the new era, in which information spreads quickly, has also come into the spotlight. It shouldn't be a fire on the other side of the river for Japan either. We interviewed them about how they should be perceived. (Economic Affairs Department reporter Keiichiro Furuichi)

A series of bank failures in the United States

It all started with the sudden bankruptcy of Silicon Valley Bank (SVB), based in western California.

A bank known for lending to technology-related startups and venture capital funds, it has total assets of about $2090 billion (27.8000 trillion yen in Japan yen * calculated at $1 = ¥133), making it the second largest failure of an American bank on record.

Then, two days after the start of the week, on the 2th, New York's "Signature Bank", which had been providing loans to crypto-asset-related companies, was also forced into bankruptcy.

With total assets of about 1103.14 billion dollars (6000.3 trillion yen in Japan yen), it was the third largest bank failure in the United States.

Interest rate hikes are also a factor

Behind the collapse of SVB is the Fed's rate hikes that have continued over the past year. As a result, the financial position of the startups they borrowed from became tighter, and the banks' management deteriorated sharply as they intensified their efforts to withdraw deposits.

In addition, the bank managed the deposits collected mainly in bonds such as government bonds, but the rise in interest rates caused bond prices to fall, and valuation losses expanded.

We were forced to sell bonds that had fallen in price to provide funds, and our financial condition deteriorated all at once.

SNS is also behind the speed bankruptcy

On March 2, two days before the bankruptcy, SVB announced a loss from the sale of bonds and at the same time announced a plan to increase capital to exceed the loss, appealing for restructuring of its business.

Despite this, why was it driven to a speed bankruptcy in just two days? There were different factors from previous bank failures.

"This is the first bank run that has been fueled by Twitter, and it's important to stay calm and look at the facts, not speculate, to figure out the right path," Patrick McHenry, chairman of the House Financial Services Committee,

said in a statement on Wednesday.

With the spread of credit anxiety this time, social media such as Twitter has shown the magnitude of its influence.

According to the Department of Financial Protection and Innovation (DFPI), California's financial authority, depositors withdrew $9 billion (¥420.5 trillion in Japan yen) in one day alone, which left SVB with a cash shortage of $6000 million (¥9 billion in Japan yen) on the 5800th day after the announcement of SVB's capital increase plan.

The amount of deposits withdrawn on this day is said to be 130% of the total deposits deposited by SVB, and it is said that the movement to spread information through SNS such as Twitter led this rapid withdrawal of deposits.

U.S. Treasury Secretary Janet Yellen said in her congressional testimony on the 16th, "No matter how strong the supervision of capital and liquidity is, if a bank consolidation frenzy occurs in the form of SNS and deposits flow out at once, the bank may be in danger of bankruptcy."

The Wall Street Journal, an American economic newspaper, reports on the circumstances leading up to SVB's bankruptcy, such as the fact that before the bankruptcy of SVB, founders and managers of local startup companies shared information on SVB's deterioration on SNS, and after that, the movement to withdraw funds spread among managers.

Local footage reported on the news showed people lining up at bank branches to withdraw deposits, but in this day and age, deposits can be withdrawn instantly via the Internet, and the form of "installation commotion" has changed significantly.

I spoke to an executive at a large bank in Japan and he was paying attention to exactly this point.

"What is different from past banking crises is the speed at which information about deteriorating business conditions is spread through social media, which is more frightening than anything for banks that deal with credit," he said.

An executive at the Bank of Japan pointed out, "Looking at the recent bank failures in the United States, I feel that the speed of financial institutions' business crisis has become much faster than at the time of the Lehman shock, and it is thought that SNS was one of the reasons for this."

Preparing for Japan crises

In addition to the successive bank failures in the United States, the deterioration of the business of Credit Suisse in Switzerland caused a significant drop in the stock market of banks and other financial related stocks in the Japan of the past week.

In addition, in the foreign exchange market, the yen was bought as a relatively safe asset, and the movement to buy Japan government bonds to avoid risk intensified.

However, the government and the Bank of Japan say that the impact on Japan is limited at this point.

The BOJ explained, "Domestic financial institutions have sufficient capital and only a few assets at risk, so we believe that the impact on the Japan financial system will be limited at this time."

However, in this age where information spreads quickly through SNS and deposits can be easily withdrawn via the Internet, bank failures in the United States are different from the bank failures seen in past financial crises.

I thought it was necessary to verify once again whether we are fully prepared for the crisis of the Japan.

Upcoming

Next week, the FOMC will be held on the 22nd and 23rd of Japan time to decide the monetary policy of the Federal Reserve. The Fed has been raising interest rates at a rapid pace to contain inflation, but the focus is on whether the stance of monetary policy will change in the wake of a series of bank failures.

In addition, on the 24th, the Japan Consumer Price Index for February will be released. The rate of increase was 2% last time, but this time the rate of increase is expected to be smaller. The level also attracts attention.