One year since the bankruptcy of US Silicon Valley Bank, what are the implications for Japan?

Highlights: One year since the bankruptcy of US Silicon Valley Bank, what are the implications for Japan?. Rapid interest rate hikes have caused banks' financial conditions to deteriorate, leading to deposit outflows. Concerns simmer that commercial real estate lending could become the latest financial market disruptor. The funding framework introduced by the Federal Reserve (Fed) in response to a series of bank failures in the United States last year to eliminate financial instability will end on March 11th. We asked Toshiyuki Suzuki, an economist who is familiar with monetary policy in Japan and the U.S.

[NHK] March 10 marks one year since the bankruptcy of Silicon Valley Bank, which triggered financial instability in the United States. Rapid interest rate hikes...

March 10 marks one year since the bankruptcy of Silicon Valley Bank, which triggered financial instability in the United States.

Rapid interest rate hikes have caused banks' financial conditions to deteriorate, leading to deposit outflows, but there are still issues with the way authorities supervise banks.

``What is the current state of the U.S. financial market?'' `

`What are the implications for Japan?''

We asked an economist who is familiar with monetary policy in Japan and the United States.

Bank holding company facing deterioration in commercial real estate loans
Fed funding framework ends on March 11th

Implications for the current US financial market and Japan, pointed out by economists

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Bank holding company facing deterioration in commercial real estate loans
Fed funding framework ends on March 11th
Implications for the current US financial market and Japan, pointed out by economists

In the United States, on March 10th of last year, ``Silicon Valley Bank,'' based in Western California and known for providing loans to start-up companies, went bankrupt.

Rapid interest rate hikes by the Federal Reserve Board caused the price of government bonds held to fall, and the country's financial situation suddenly deteriorated.

The spread of information through social media accelerated the outflow of deposits, and it was also called the digital bank run.

This led to the bankruptcy of Signature Bank and First Republic Bank, resulting in the second to fourth largest bank failures in history in just two months.

The financial authorities were able to contain the spread of financial instability by promptly taking unprecedented measures such as protecting the full amount of deposits and creating a special loan system.

However, there are still issues with the supervisory system that allows authorities to detect crises in advance, such as the impact that rapid interest rate hikes will have on bank finances.

In addition, borrowing costs for commercial real estate such as office buildings are rising due to rising interest rates, and prices are trending downward as the number of vacant tenants increases.

There are smoldering concerns that this could lead to deterioration in the financial performance of banks that provide loans for commercial real estate.

Bank holding company facing deterioration in commercial real estate loans

New York Community Bancorp, a New York-based bank holding company, ended up in the red in its financial results for the three months ending December of last year as a result of rising costs to dispose of non-performing loans for commercial real estate. The company's stock price has plummeted by more than 60% as of March 8 compared to the end of last year.

Concerns simmer that commercial real estate lending could become the latest financial market disruptor.

This bank holding company bought part of Signature Bank, which went bankrupt last year, but it has been pointed out that strict regulations from the authorities were applied as the size of assets expanded, which was also a factor in the deterioration of business. Masu.

Fed funding framework ends on March 11th

The funding framework introduced by the Federal Reserve (Fed) in response to a series of bank failures in the United States last year to eliminate financial instability will end on March 11th.

This framework is called BTFP (Bank Term Funding Program), and financial institutions that handle deposits, such as banks, provide loans for up to one year using government bonds, mortgage securities, etc. as collateral and on more favorable terms than under the previous system. is that you can receive it.

From the beginning, it was a one-year time-limited measure.

In March of last year, after Silicon Valley Bank and Signature Bank went bankrupt one after another, many financial institutions used this framework to prepare for situations where deposits would be withdrawn.

As the lender of last resort, the Federal Reserve supports financial institutions' financing, and ``contributed to stabilizing the banking system and supported the economy.''

Implications for the current US financial market and Japan, pointed out by economists

We asked Toshiyuki Suzuki, an economist who is knowledgeable about monetary policy in the US and Japan, about the current US financial market and its implications for Japan.

Q. How do you look back on the American bank failure?

A. A series of bank failures of that magnitude would have a negative impact on the entire economy and leave major problems, but the American economy can be said to be in good shape.

Learning from the lessons of the past, from the Great Depression to the Lehman Shock, when financial troubles caused serious damage to the economy, Treasury Secretary Yellen and others swiftly proposed measures such as full protection of deposits and the provision of funds by the Federal Reserve. This prevented the spread of the impact and provided a sense of security.

I think it can be said that one of the sources of America's current strength is its ability to solve problems when they arise.

On the other hand, American finance has some problems.

One is commercial real estate financing and the other is the stock market.

Depending on how you look at it, there is a possibility that the economy has reached a bubble-like level, and the current situation is one where problems remain.

Q. Commercial real estate issues. What is the impact?

A. The U.S. financial authorities say that the banking system is sound, but they emphasize that problems may arise with individual banks that finance commercial real estate, and they are monitoring them very closely. Masu.

In the case of Silicon Valley Bank, which went bankrupt, the management's risk management was sloppy while collecting large amounts of deposits, and the authorities were not able to properly monitor the bank.

We may be able to feel at ease to some extent if we assume that surveillance is currently being strengthened and that the authorities will take prompt action if there is a problem.

Q. The US financial authorities cannot see through the deterioration of business. What are the implications for Japan?

A. Historically, when monetary easing is implemented for a long period of time and then monetary tightening is introduced, major financial problems have occurred, including the bursting of Japan's bubble.

Rather than dealing with problems after they occur, there are things you should do before they occur.

In Japan, too, the government bond market remains static due to years of monetary easing and yield curve control, and there is a risk that most Japanese authorities have little practical experience.

I think it is necessary to strengthen checks to see whether banks can respond to changes in the business environment, and to conduct training so that when problems occur, they can prevent them from spreading to the entire economy.