[Initial Perspective] The Bankdemic Has Not Ended

Hwang Junho, Head of International Team 1

The "Bankdemic" (bank + pandemic) marks one month (the 10th) since it swept through the global financial markets. This crisis is distinct from others in that bad news, emerging amid a predicted economic recession due to high interest rates, spread through a "mobile banking bank run" (massive deposit withdrawals), toppling banks with stable financial soundness.

The responses of countries facing the Bankdemic have also differed from past approaches. While the 2008 financial crisis saw coordinated measures on a global scale involving the US, Europe, China, and others, this time individual battles have been fought. The determination to protect the financial industry by their own means has been evident everywhere.

In the US, on the 11th, following the largest bank closure since the 2008 financial crisis (Silicon Valley Bank, SVB), Treasury Secretary Janet Yellen stepped in. She contacted Jamie Dimon, Chairman of JP Morgan, to discuss private sector support, and Dimon supported SVB through a self-help fund created collectively by financial institutions. The US administration also discussed ways to calm the situation through close communication with Warren Buffett, Chairman of Berkshire Hathaway, known as the "Oracle of Omaha." Secretary Yellen recently commented on the situation, stating that "the government had to take substantive intervention to alleviate specific pressures on the financial system."

Switzerland made a similar choice. The Swiss government demanded that UBS, the largest bank, merge with its competitor Credit Suisse (CS) and provided liquidity support amounting to around 150 trillion won. The merger decision was made over the weekend following the crisis, and procedures such as shareholder approval were boldly omitted. Even UBS, the merger party, expressed opposition but could not block the government's decision. Notably, Switzerland’s choice was remarkable in that it created a new "too big to fail" institution in Europe, which had consistently criticized the US's too-big-to-fail large banks.

Some view these responses as signaling the return of mercantilist capitalism, where the state controls banks. Mercantilism can be interpreted in various ways, but the key point of this assessment is that an era has arrived in which the state manages the market not as a referee but as a player. They saw the Bankdemic crisis as an opportunity and made swift decisions aligned with the international sentiment moving toward the end of globalization.

Their decisions carry significant implications for South Korea as well. Even if Korea cannot join the "resurgence of mercantilist capitalism" should the Bankdemic spread, it must be able to contain the crisis’s expansion and the resulting market panic. However, recent moves by financial authorities raise doubts. While considerable effort seems to be devoted to interventions such as involvement with financial holding company chairpersons or establishing specialized banks under the pretext of breaking the oligopoly of the five major banks, there appears to be a sense of complacency regarding the Bankdemic. The liquidity of domestic banks may be reliable. However, given the nature of the Bankdemic, it is important to remember that the transmission of fear, rather than liquidity, often leads to crisis. In South Korea, where the mobile banking system is more advanced than in any other country, bank runs could occur more severely than anywhere else. SVB collapsed within 36 hours.

Experts predict that the spark of the Bankdemic will spread to the real estate loan market. It is time to put heads together and prepare for an emergency. Crises come without warning, and preparation shines when done in advance. Would it not be burdensome to be criticized by comparison with precedents? The Bankdemic is not over yet.

This content was produced with the assistance of AI translation services.