JAKARTA - UOB Indonesia Wealth Advisory Head Diendy Liu stated that the collapse of the Silicon Valley Bank (SVB) was not a repeat of the 2008 economic crisis.
"Currently, news of the failure of several banks in the United States and taking over Credit Suisse by Bank UBS. Many have speculated that this incident could be the same crisis as 2008, but we are trying to provide the best possible explanation that this is actually different," he said in Media Gathering and Literacy "Preserve and Grow Your Wealth Through Risk-First Approach" at Teras Ramayana, Hotel Indonesia Kempinski Jakarta, quoted from Antara, Friday, March 31.
In 2008, the economic crisis was said to have occurred due to a bubble economy. This means that there is an excessive speculation in the US property sector so that creditors who do not deserve property credit are instead given credit.
After that, the credit was resold by the bank, causing a domino effect when the property credit failed.
The SVB and Signature Bank events in the US in 2023 actually occurred because the banks obtained abundant Third Party Funds (DPK).
During the COVID-19 pandemic, he continued, the US was one of the countries that provided the largest fiscal assistance. Fiscal assistance from the US government (A kind of Direct Cash Assistance / BLT) is given to the public to survive the pandemic.
The funds obtained by the community were finally deposited by customers to various banks, one of which was SVB.
Unfortunately, not all banks are able to manage the DPK well. Moreover, during the pandemic with the abundance of the DPK, banks cannot distribute the DPK to credit considering the global situation is during a pandemic, so banks are selective in providing credit.
Because it is not placed in credit, the bank puts the DPK into Government Securities/SBN (US Treasury in the US). However, because at that time the US Treasury had low yields considering the low rate of interest rates, banks put funds into tenors for up to 10 years and over 10 years with very high price sensitivity.
If interest rates go up, bonds go down, if interest rates go down, bonds go up. So they place the DPK on bonds whose tenors are medium and long term when interest rates are low. So this has no other choice than normalizing the US Central Bank (The Fed) policy to increase interest rates again (up to more than 400 bps/basis points) which will be carried out throughout 2022," said Diendy.
The increase in interest rates then reduces the price of bonds issued. At the same time, because the Central Bank tightens liquidity in the market, automatically people who previously had savings have finally started to attract saving for business expansion, consumption, and so on.
When the DPK began to be withdrawn by customers, he said, the bank inevitably let go of the ownership of the securities in a state of loss.
"So, there is no failure caused by bad credit, not due to malpractice like in 2008. This is simply because of the inability of banks to manage DPK properly, so we think there will be no domino effect like 2008," he said.
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