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13 Mar 2023

International Economy

The collapse of banks in the US has limited impact on Thailand. However, further developments merit close watch (Current Issue No.3385)


        The recent woes of select US banks may have disproven the notion of “Too Big to Fail”, as the financially troubled banks were shut down. US authorities and the US Federal Reserve (Fed) have accelerated the imposition of measures to protect depositors and other financial institutions, thus avoiding massive impacts that could trigger systemic risks. In terms of measures to support depositors, prior limits to deposit protection have been eased. Considering potential systemic risks caused by the collapse of Silicon Valley Bank and Signature Bank, the US authorities have allowed all of those two banks’ depositors to have access to their deposits, starting Monday, March 13, 2023. At the same time, the Fed has relaxed its conditions in order to provide liquidity to financial institutions. The first solution is the newly unveiled Bank Term Funding Program (BTFP) to offer secured loans with maturities of up to one year to other banks and financial institutions encountering problems of insufficient liquidity and/or deposit outflows. The second measure is the Fed’s potential easing of conditions for the discount window lending available to financial institutions.

        US regulators have introduced these measures to restore the confidence of depositors, forestall systemic risks and ensure sufficient liquidity of financial institutions. However, KResearch holds the view that close attention must be paid to the extent of the US banks’ problems at present as well as their future situation. This is because the newly announced measures can neither enhance financial institutions’ profitability, nor can they fully guarantee that other financial institutions will not have their weak performance brought to light amid the upward trend of US interest rates.

        Regarding any impact on Thailand, KResearch anticipates that the US banks’ collapse would indirectly cause volatility in the capital market. Meanwhile, any direct impact is expected to be limited as Thai financial institutions may have minimal or zero direct exposure to the troubled US banks. Aside from their diversified asset and deposit portfolios, Thai banks have gradually adjusted their investment strategies in fixed income instruments since 2022 to minimize the impact of rising interest rates. Additionally, Thai commercial banks have a liquidity coverage ratio higher than the threshold, and a capital adequacy ratio which is more robust than that of US banks on average.

International Economy