SVB collapse a nonissue locally for now, regulator vigilant

A delivery person drops off pizzas at Silicon Valley Bank's headquarters in Santa Clara, California on March 10. [AFP/YONHAP]

The failure of Silicon Valley Bank (SVB) has had little impact on the financial markets in Korea given the swift and decisive response in the United States and a lack of exposure to the financial institution, though regulators remain vigilant to any follow-on contagion effects.

At the opening of the trading day, stocks plummeted, with the Kospi falling as much as 1.04 percent and the Kosdaq as much as 2.23 percent. They rebounded later in the day into positive territory, and the won strengthened, rising more than 1.5 percent against the dollar.

“The possibility of the liquidity crisis of the U.S. Silicon Valley Bank spreading cannot be excluded,” said the Ministry of Economy and Finance on Monday following a meeting attended by the chiefs of Financial Services Commission (FSC) and Financial Supervisory Service (FSS).

“Views that the chance of the U.S. Silicon Valley Bank’s risks will not spread across the financial sector were dominant by the attendants. But the government and the related institutions will thoroughly monitor the situations 24/7 and will swiftly respond to strictly manage it from spreading to our economy as a side effect.”

“Uncertainties in the financial market are spreading from the bankruptcy of U.S. SVB,” said President Yoon Suk Yeol in a meeting with his senior secretaries, according to presidential spokesperson Lee Do-wan. Yoon was said to be closely examining the impact on the domestic financial markets and real economy.

Start-up focused SVB collapsed on Friday after failing to raise $2.5 billion to plug losses on bonds. The trouble prompted a run on the bank.

SVB became the biggest U.S. lender to fail in more than a decade, since Washington Mutual went under in 2008. It was the 16th largest U.S. lender as of the end of last year, with about $209 billion in assets.

Crypto-friendly, New York-based Signature Bank was shut down by regulators on Sunday, and California's Silvergate announced its impending liquidation last week.

“We’ve confirmed local financial companies have the capacity to endure temporary shocks considering fundamental differences, including the different asset-liability structures of banks and non-bank financial firms from that of SVB, and their favorable asset and liquidity ratio,” said the FSS.

It added government and public bonds held in large portion by some financial firms have a short duration and were invested relatively recently, before the rise of interest rate affected the bond price.

Foreign currency liquidity coverage ratio for banks was 143.7 percent on Friday.

This is a level that can sufficiently endure even if volatility grows in foreign exchange market from the SVB collapse, according to the FSS.

“Korea has been well-equipped with response tools for different situations following various crises in the past,” said the FSC.

Impacts of the SVB collapse could depend on the U.S. February consumer price index, which is to be announced on Tuesday, according to the Bank of Korea.

“Fintech firms are feeling a sense of crisis,” said Cha Soo-yeon, a spokesperson for Finda, a marketplace providing information on loans. “There aren’t many local fintech firms that received investment from a U.S.-based investor, so the direct impact will likely be limited. But the incident could affect the financial market, which may affect local financial firms, which are investors in fintech companies.”

The Korean unit of Roblox, a metaverse company with around 5 percent of its cash deposited at SVB, said it is confirming the impact of its link with the SVB fallout. Roblox said 5 percent of its $3 billion cash and securities balance as of Feb. 28 were deposited with SVB.

According to the U.S. Securities and Exchange Commission, Korea’s National Pension Service (NPS) held about 100,000 shares in the SVB Financial Group at the end of last year, which was valued at around $23.2 million.

“We’re closely observing the market situation,” said a spokesperson for the NPS. “We’ll strengthen monitoring.”

SVB's stock plunged to $106.04 on March 9, down almost 70 percent from $348.06 early last month.

“Problems at SVB were started by depositors, not loans,” said Lee Eun-taek, an analyst at KB Securities in a report on Monday. “That means the spread will be limited if the possibility of another withdrawal of deposits is low.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]