March 15, 2023
PETALING JAYA – MCA is urging the Government and Bank Negara to take steps to protect the local banking industry by implementing proactive policies and issuing statements to reassure Malaysians and investors that our banks are still safe.
This follows the closure of Silicon Valley Bank (SVB) and Signature Bank in the United States recently.
MCA president Datuk Seri Dr Wee Ka Siong said the Government and Bank Negara should issue statements to reassure Malaysians and investors that local banks are not affected by the bank closures and what occurred in the United States will not happen in Malaysia.
In a TikTok video on Tuesday (March 14), he said at the moment, we are in danger and facing great threats.
“All banks need to comply with the statutory reserve requirement, which is the amount of funds kept by the bank in reserve to ensure that it can meet its liabilities in the event of sudden withdrawals.
“Typically, reserve requirements are held as government bonds which are safe, liquid and are in the form of assets rather than held as cash,” he said, explaining that inflation conditions increased after the spread of Covid-19 and the impact of the Russia-Ukraine crisis.
He added that in a bid to combat inflation, most governments around the world have had to raise interest rates.
“When interest rates are raised, bond yields also increase. When bond yields rise, bond prices fall.
“The US government has raised their Federal Reserve interest rate from 0.75% to 4.75% in a very short period of just over one year.
“This means that a bond that previously yielded 0.75% is now worth about half of its previous price when the market’s bond yield rose to 4.75%,” he said, adding that many banks were hit when the value of their bond holdings fell, meaning they no longer met their reserve requirements.
He said that this was what happened to SVB last week where they had to raise capital by selling more shares to support their reserve requirements.
“This step then caused panic among their depositors, causing many of them to withdraw money on a large scale from SVB.
“As a result, it caused the largest share drop in a day for SVB, the 16th-largest bank in the United States, which has an equivalent value to Maybank here.
“Following the closure of SVB, many depositors, including companies that have deposited money or facilities in SVB were affected because they were no longer able to withdraw money or extend their loans to pay workers’ and suppliers’ salaries,” he said, adding that on Tuesday, Signature Bank, the 29th largest bank in the United States, also closed down due to the same reason.
He said that this showed that the world economy is in a state of panic because there is uncertainty in the market and it is unknown which bank will be affected next and whether it will affect depositors with money in that bank.
“In fact, the share price of several banks in the United States and also in Malaysia was also affected. For example, the share price of First Republic Bank has recorded a decrease of 60% on Monday (March 13).
“In Malaysia, Maybank’s share price decreased by 5% while CIMB recorded a decrease of 8% over the past few days.
“This is the cause and reason why the stock market recorded a severe decline over the last couple of weeks,” he said, adding that this was why he was recommending that the government and Bank Negara should reassure Malaysians and investors.
@drweekasiong Ini saranan saya kepada kerajaan dan Bank Negara Malaysia susulan penutupan bank di AS – Silicon Valley Bank (SVB) dan Signature Bank. #WeeCare ♬ original sound – DrWeeKaSiong