SVB’s collapse issues early warning for S. Korea’s financial stability

Professor Douglas Diamond at the University of Chicago Booth School of Business told in a keynote speech at the 2023 Dong-A International Finance Forum on Wednesday that it should be noted that the bankruptcy of Silicon Valley Bank (SVB) gives South Korea an early warning. He put emphasis on why financial stability matters at a time when sudden interest hikes cause an economic crisis.

In recognition of identifying the mechanism of bank runs, a large cash withdrawal from banks that sparks a series of fear and chaos, Professor Diamond was awarded last year’s Nobel Memorial Prize in Economic Sciences. The Nobel-winning economist attributed the failure of SVB, a U.S. bank that went bankrupt in March, to the fact that financial regulators failed to analyze SVB’s book equity realistically, thereby not expanding capital to correct faulty financial aspects.

Professor Diamond advised that the South Korean financial industry should ensure regulation and supervision so that banks can stay financially sound based on multifaceted assets. He also added that it is important to build a safer system with a lesson learnt from SVB and, if required, expand capital, and reduce dividends.

South Korean Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said in a congratulatory speech that financial stability lays the foundation of everything else, promising to monitor fast financial changes at home and abroad real time and aggressively respond to volatility based on 40 trillion won worth of finances earmarked for market stability. The 11th forum, jointly hosted by The Dong-A Ilbo and Channel A, was held at Lotte Hotel in central Seoul to discuss the sudden bankruptcies of banks and look at how finance can contribute and help find solutions.


Do-Hyong Kim dodo@donga.com · Hee-Chang Park ramblas@donga.com