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Diokno assures stability of banking sector

Finance Secretary Benjamin Diokno, the head of the economic team, on Wednesday assured the public that the economy and the local banking sector remain strong and will not be affected by the financial turmoil in the United States.

Diokno was referring to the collapse of California-based Silicon Valley Bank, the 16th largest bank in the United States catering for the financial needs of technology companies around the world.

SVB’s downfall was linked to the decline “in the value of bonds it acquired during boom times, when it had a lot of customer deposits coming in and needed somewhere to park the cash.”

Diokno said the Philippine banking system is sound and well-capitalized and there is no reported exposure of Philippine banks to SVB. “[I] think the Fed and US finance authorities have successfully ring-fenced the banking turmoil,” he said in a message.

The 44-member strong Bankers Association of the Philippines also assured the public that developments in the US financial system have no substantial or material impact on Philippine banks.

It said local banks have diversified deposit bases that include all sectors of the Philippine economy, allowing them to continuously provide the liquidity needs of their clients.

“Additionally, banks in the Philippines continue to have capital and liquidity ratios that exceed the requirements set by the Bangko Sentral ng Pilipinas,” the BAP said.

“The prudential measures implemented by the BSP [Bangko Sentral ng Pilipinas] provide the necessary support that allows the Philippine banking system to withstand economic shocks,” it said.

The BAP said it continues to work with BSP and other stakeholders to pursue reforms that will lead to an even stronger financial system that sufficiently provides the financial needs of the banking public.

The BAP groups 44 universal and commercial banks in the country, including 20 local lenders and 24 foreign bank branches.

Meanwhile, the head of Silicon Valley Bridge Bank, created by US regulators to succeed SVB after it collapsed, on Tuesday urged fleeing depositors to return with their money, as large banks see an influx of funds.

SVB—a key lender to startups across the United States since the 1980s—collapsed after a sudden run on deposits, prompting regulators to seize control Friday.

“The number one thing you can do to support the future of this institution is to help us rebuild our deposit base,” chief executive Tim Mayopoulos said in a statement, “both by leaving deposits with Silicon Valley Bridge Bank and transferring back deposits that left over the last several days.

He added: “We are doing everything we can to rebuild, win back your confidence, and continue supporting the innovation economy.”

The Federal Deposit Insurance Corporation has said it will cover all SVB depositors, including beyond the usual cap of $250,000 for FDIC protection.

“We are making new loans and fully honoring existing credit facilities,” Mayopoulos said.

SVB’s failure on Friday, the largest US bank failure since 2008, was preceded on Wednesday by the liquidation of Silvergate Bank, a small regional institution favored by the cryptocurrency community.

On Sunday, authorities also forced Signature Bank, the nation’s 21st largest bank, to close.

Larger banks including JPMorgan Chase and Bank of America have since seen an influx of customers, according to two sources close to the industry.

One added that while the larger institutions are not actively pursuing leads from the closed banks, they are accepting their deposits, which is a large sum.

Clients from small and medium-sized banks have also probably transferred all or part of their funds “into major players, that people think there is no way the government will let go down,” said analyst Alexander Yokum, a regional banking specialist at CFRA.

The extent of the transfers will probably only be known when banks publish their quarterly results beginning in April, or if they publish an interim report before then, Yokum said.

In a note, S&P Global Ratings said it has “not seen evidence that the unmanageable deposit outflows experienced at a few banks have widely spread” to others.

In a joint statement on Sunday, the US Federal Reserve, the FDIC and the Treasury Department said SVB depositors would have access to “all of their money” starting Monday.

The Fed also announced it would make extra funding available to banks to help them meet the needs of depositors, which would include withdrawals.

S&P said it believes that the Federal Reserve measures “have equipped banks with additional liquidity sources if needed and probably also lowered the odds that confidence-sensitivity issues become relevant for a large number of banks.” — AFP

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