Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Financial markets show resilience to SVB collapse
Electronic signboards at Hana Bank in Seoul, Monday, show the benchmark KOSPI rose 0.67 percent to 2,410.60 points, while the won-dollar rate closed at 1,301.8 won per dollar, down 22.4 won from Friday's close. Yonhap
By Yi Whan-woo
US gov't guarantees all deposits amid bank crisis fears
By Yi Whan-woo
Financial markets in Korea remained resilient, Monday, in the face of the sudden bankruptcy of Silicon Valley Bank (SVB) that prompted concerns of an exodus of foreign capital in search of safer assets and a surge in market volatility.
The benchmark KOSPI advanced 16.01 points, or 0.67 percent, to close at 2,410.60, following a three-day losing streak until Friday when SVB became the first U.S. bank to collapse since the 2008-09 global financial crisis.
The failure of SVB, the 16th-largest American bank, was reminiscent of the crisis back then when a systematic banking failure in the U.S. due to a housing market bubble resulted in worldwide economic repercussions.
The Korean won also gained much ground against the greenback Monday, with the won-dollar rate finishing at 1,301.8 won per dollar, down 22.4 won from Friday.
The local currency overall has been losing ground against the dollar in recent weeks, as it has been widely anticipated that the U.S. Federal Reserve will resume its hawkish monetary policy after slowing the pace of its rate hike to 25 basis points in February.
Analysts said the higher-than-expected resilience of the financial markets here reflects investors' general view that the collapse of SVB is more likely to influence the Fed to re-think its aggressive credit tightening rather than resulting in another failure of the banking system.
The high interest rate in the U.S. was behind the liquidity shortage of SVB specializing in lending to tech startups, which also struggled to obtain financing.
The Fed's upcoming rate-setting meeting is scheduled from March 21 to 22 and its monetary policy has been weighing on the Korean financial markets as the interest gap between Korea and the U.S. may get wider.
Such a gap has been attributed to the recent capital outflow from Korea, especially because the Bank of Korea (BOK) is believed to be on a course to freeze its base rate at 3.5 percent, as compared to that of the U.S in a range of 4.50 percent to 4.75 percent.
“The preference for safer haven assets remain unchanged among foreign investors, but concerning the SVB crisis, they appear to have judged that it will lessen market volatility associated with the Fed policy for the time being,” said Seo Jeong-hun, a senior researcher at Hana Bank.
Joo Won, deputy director of Hyundai Research Institute, assessed the U.S. government's commitment to contain the SVB fallout can be a reason for investor confidence in the Korean financial markets.
The economist was referring to U.S. President Joe Biden's assurance, Sunday, that American people and businesses “can have confidence that their bank deposits will be there when they need them.”
Also on Sunday, U.S. financial regulators promised that depositors at SVB will have access to their funds Monday, trying to assuage fears that tech startups ― the bank's major customers ― will struggle to pay their employees this week.
Meanwhile, President Yoon Suk Yeol ordered his staff to “thoroughly check” possible adverse effects of SVB's collapse on Korea's financial markets during a meeting with his senior secretaries, Monday.
In a separate meeting concerning the SVB crisis, the BOK said it will closely monitor the impact on the benchmark interest rate, stocks, currency rate as well as capital. It also said it will take measures to stabilize the market if necessary.