Finance News: Moody’s has downgraded outlook on the US banking system

Finance News: Moody’s has downgraded outlook on the US banking system

Financial Crisis is always a possibility

I felt first hand the ASEAN financial crisis in 1997 / 98. The exchange rate of Ringgit to UK Pound went to as high as 1 Pound to RM8 at one point. Today, the exchange rate is 1 Pound to RM5.44 Please refer to the image from google as below:

Malaysia’s Bank Negara Malaysia took one important step in my opinion. It forced the merger of the huge number of banks for a small country like Malaysia into just 10 banking groups. This ensured that the attention and help could now be focused on specific groups versus every individual banks. Moody’s said this about the Malaysian banking industry less than 2 weeks ago:

“Moody’s Investors Service said Malaysia’s banking system outlook remained stable underpinned by strong economic growth and robust credit metrics across the system.

“While weakening exports will weigh on Malaysia’s economic growth, strong domestic demand will support it as the country’s labour conditions improve and inflation will remain lower than regional peers.

“Banks’ ample loan-loss buffers and the ongoing forbearance measures will mitigate asset risks from weak borrowers,” it said.” Source: themalaysianreserve.com

There was however a big news recently about the failure of a big bank in the United States. Do read about it below:

News in nst.com.my Moody’s Investors Service said that has downgraded its outlook on the US banking system from stable to negative after the collapse of one of the 20 largest lenders in the United States that analysts say could create a contagion.

In a report, it said, “We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank and, Signature Bank (SNY) and the failures of SVB and SNY.”

SVB is the largest US lender to fail since Washington Mutual collapsed in 2008 at the height of that year’s financial crisis. Investors at the California-based bank withheld US$42 billion in deposits last week, triggering a 60 per cent plunge in its share prices.

SVB provided financing for almost half of US venture-backed technology and healthcare companies. At the end of 2022, the bank said it had US$151.5 billion in uninsured deposits, US$137.6 billion of which was held by US depositors. Its total assets were US$209 billion as of the end of 2022. Do read the full article here: News in nst.com.my

Funds in the bank – are they protected?

In Malaysia, under the Financial Sector Masterplan, Perbadanan Insurans Deposit Malaysia (PIDM) was established in 2005 to protect the savings of bank depositors via its Deposit Insurance System (DIS). This mechanism ensures that the savings of depositors and benefits of takaful certificate and insurance policy owners are intact in a failure of any PIDM member bank or insurer. As a result, financial consumers can remain assured and confident in the Malaysian financial system during good and bad times.

PIDM protects up to RM250,000 per depositor per member bank. There is separate protection for conventional and Islamic deposits held by individuals, joint owners, sole proprietorships, trustees, partnerships and companies. PIDM deposit coverage protects 96% of depositors in full. Do read about PIDM here.

I wish that there are no global financial crisis in the future

Central banks all over the world have taken many steps to ensure historical kind of financial crisis does not recur. I do believe this is sufficient check and balance to guard against most of the typical type of financial crisis. We just need to hope that the people in these central banks continue to have the foresightt quickly take appropriate actions and protect all of us, the depositors who would lose everything we own should the bank we kept money in goes under and we were the last to know.

I hope my wish will come true and we will never have another 1997 / 98 kind of financial crisis anymore. Not even that 2008 mortgage crisis which started because of pure greed of the banks.

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