A leading state-owned Chinese financial publication has used the collapse of Silicon Valley Bank (SVB) to contrast differences in Chinese and US monetary policy and financial regulation, touting the advantages of the former when it comes to the prevention of risk incidents and bank runs.
In an article entitled “No Need for Concern that the Silicon Valley Bank Incident Will Shock China’s Financial System” (不必担忧硅谷银行事件冲击中国金融体系) published by Securities Times (证券时报) on 15 March, author Ling Chen (凌辰) makes the argument that SVB’s collapse provides a cautionary warning of the need to maintain strict regulation of the Chinese finance sector.
“The Silicon Valley Bank incident has important implications for the development of small and medium-sized banks and the stability of the financial system in China,” Ling writes.
“From the perspective of macro policies, changes to regulatory policies, and reforms of financial regulatory agencies, events like the Silicon Valley Bank collapse are less likely to occur in China and will not impact China’s financial system.”
Ling firstly highlighted differences in the nature of monetary policy implementation between the US and China in response to the economic impacts of the Covid pandemic.
“China’s monetary policy has always emphasized prudence. Even if the economy is stimulated, it is never ‘flooded.’ Instead efforts are made in both quantitative and structural terms, with the active adoption of ‘precise and powerful’ structural monetary policy tools to achieve results,” he wrote.
“In contrast, the monetary policy adjustments made by the United States are too drastic.
“After the pandemic in 2020, the Federal Reserve switched on the ‘nuclear powered’ money printing machine, but has since raised interest rates sharply in 2022. By slamming hard on the brakes, U.S. financial institutions are in general facing losses on their assets.”
Ling said the SVB collapse also highlighted the importance of stricter direct regulation of depository institutions.
“The Silicon Valley Bank incident reflects the ‘loosening’ of US regulatory rules on the liquidity requirements of these types of banks,” he wrote. “In contrast, in recent years, the updating of China’s regulatory policies and the reform of regulatory agencies have been performed with a focus on the rational of a ‘stable financial system.’
“From the perspective of regulatory policies, in recent years China has issued a series of financial regulatory policies such as new asset management regulations and new financial management regulations, as well as issued a series of targeted regulations directed at financing channels, nesting, and maturity mismatches that affect banks and other financial institutions.
“This has reversed the chaos in the industry, essentially curbed shadow banking risks, resolved potential financial risks, and put various types of asset management products in China in a healthy and standardized state of operation.
“Even though the Silicon Valley Bank incident will not have a substantial impact on China’s financial markets, the domestic financial industry still must learn the lesson for it to always put risk prevention and control first.”