Fri, Jun 02, 2023 page3

• Capital markets stable amid global volatility

  • By Shelley Shan / Staff reporter
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  Taiwan’s capital markets remain stable despite volatility on international financial markets, President Tsai Ing-wen (蔡英文) said yesterday.

  Tsai made opening remarks at the Master’s Forum jointly organized by the Chinese-language Economic Daily News and Mega Bank, at which the winner of last year’s Nobel Prize in Economics Douglas Diamond was invited to speak on the recent banking crisis in the US.

  “As part of the international community, Taiwan has been cautiously responding to the dramatic political and economic changes worldwide in the post-COVID-19 era,” Tsai said. “Facing global inflation, Taiwan has raised interest rates five times since last year.”

  

  President Tsai Ing-wen, center, and Nobel Prize Laureate Douglas Diamond, fifth right, attend the Master’s Forum in Taipei yesterday.

  Photo: CNA

  Aside from adopting a moderate and progressive approach to raising interest rates, the government has introduced a mechanism to stabilize consumer prices, Tsai said, adding that subsidies and tax relief measures were offered to ease the pressure brought by inflation.

  The Legislative Yuan passed a special budget to ease the burden on economically disadvantaged people in the post-pandemic era, she said.

  “Although global inflation and raising interest rates affect financial institutions worldwide, the overall health of financial institutions in Taiwan is sound. The government has also taken corresponding measures to address issues that might arise with the liquidity of the domestic banking system and fluctuating value of the domestic insurance industry,” Tsai said.

  Due to the stability of the domestic capital markets, Fitch Ratings and S&P Global Ratings gave Taiwan “AA” and “AA+” ratings respectively, which recognizes the nation’s ability to manage and maintain a resilient financial system, she added.

  Asked whether the recent banking crisis in the US and Europe presents any risks in the global banking sector, Diamond said that the crisis is different to the subprime mortgage crisis of 2008.

  “In 2008, with big investment banks like Lehman Brothers, there was this problem of banks being too interconnected with each other, and some banks having a bunch of very bad mortgage-backed securities on the books. In that case, you have to have a very careful stress test and see if any bad securities were on a particular bank’s book. That was the reason the crisis was spreading,” Diamond said.

  “In the most recent problem, Credit Suisse was thought to have a bunch of bad loans, but it seems that what they had were management problems. In the US banks, it was purely just interest rate risks. In the case of the First Republic, it was the problem with the mortgage, and with the Silicon Valley Bank, it was problems with its trading [of] US government securities,” he said.

  The reason the bank run seemed to be spreading this time was not so much because banks have illiquid or bad assets, but because people think that the banks’ supervisors have not done their job well and there might be some insolvent banks out there, Diamond said.

  “As a depositor, if I am not sure my bank is solvent, and I see other people thinking about runs, then I start thinking about runs. Once it happens, it is going to be difficult for the system. As such, fear of runs is the global factor that seems to be spreading this time,” he said.

  When the issue is interest rate risks, using market prices to make sure banks stay solvent is smart, he added.

  The recent banking crisis resulted in a loss of savings to money market funds, which affects whether small and medium-sized banks in the US can offer loans to small and medium-sized businesses, Fubon Financial senior executive vice president and chief economist Rick Lo (羅瑋) said.

  This could slow the US economy, a problem that people should monitor closely, Lo said.
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