We are monitoring the credit implications of the ongoing developments within the global banking sector and other potential macro and credit ramifications.
The abrupt demise of Silicon Valley Bank (SVB) and Signature Bank, and UBS' hasty takeover of Credit Suisse (CS) are reminders of banks' sensitivity to confidence and liquidity.
Emergency liquidity measures by central banks and the expedited takeover have likely lowered the odds of broader banking system contagion, although the decision to write-off CS' AT1 bonds may contribute to a higher cost of capital for banks. Broader credit risks remain elevated.
U.S. bank failures are the latest episode of financial volatility partly brought about by rising interest rates. We think it unlikely that this episode will prevent policymakers from sticking to the task of taming inflation and expect rates to remain higher for longer.
We think it's likely financing conditions will continue to tighten and bring further episodes of credit market turbulence.
READ MORERecent troubles for the U.S. regional bank sector and Credit Suisse have shaken confidence. We have not seen any meaningful contagion spillover into AsiaPacific.
That said, second-order effects, such as tighter financing access and higher risk premia demands, could hit the region's credit markets and borrowers.
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It's too soon to assess the full impact of the fallout from the collapse of Silicon Valley Bank--but for now, we think the macro effects will be limited.
Although global markets saw heightened volatility from the suddenness of the largest bank failure since 2008, the U.S. government moved quickly to stem the damage from SVB's collapse. Markets remain in flux but have generally calmed.
Consumer confidence would be the macro channel most likely to be affected. Uncertainty about the way current events might play out and their duration could dampen spending and demand, leading to a steeper-than-expected slowdown.
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S&P Global Ratings believes that the temporary depegging of two major stablecoins following SVB's failure demonstrates inherent risks in these assets.
Stablecoins are crypto assets that are intended to maintain their value relative to a fiat currency.
Yet after SVB's collapse, U.S. Dollar Coin (USDC) and DAI temporarily lost their peg to the U.S. dollar by 13%, before subsequently rebounding.
Meanwhile, regulators closed down Signature Bank, a key lender to crypto businesses, which followed the liquidation of Silvergate Bank on March 8, 2023.
In our view, these events highlight the interconnectedness between the traditional and decentralized financial systems (TradFi and DeFi), and that contagion of risks has the potential to go both ways.
It remains to be seen whether the failure of SVB, Silvergate, and Signature Bank will affect the wider crypto ecosystem, particularly if other banks are reluctant to step in to serve it.
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