SANTO DOMINGO.-The Central Bank of the Dominican Republic (BCRD) assured this Tuesday that the bankruptcy of Silicon Valley Bank (SVB) and other small banks in the United States will not have "significant" repercussions for the Dominican Republic, because the entities with financial problems are not jointly responsible for Dominican banks.
Based on analyses of the interconnections of local banking entities, "it was possible to establish precisely that the bankruptcy of Silicon Valley Bank and Signature Bank does not affect the Dominican financial system, given that it does not have direct interaction with said international entities," the Central Bank of the Dominican Republic stated in a press release.
The Central Bank and the Association of Multiple Banks of the Dominican Republic (ABA) highlighted the Dominican economic stability, guaranteeing resilience and robustness of the financial system indicators, which "occupy top positions in the region in liquidity, profitability, low delinquency and solvency.".
The United States is experiencing the biggest financial meltdown in its economy since the 2008 global crisis. This time, three specialized banks collapsed due to massive withdrawals of funds by Silicon Valley Bank customers, causing its bankruptcy and, consequently, the closure of other entities, also impacting operations in the stock market.
Due to the importance of the events, the Monetary Board of the Dominican Republic met today, Tuesday, in an extraordinary session to address the financial situation in international markets, analyzing the causes and measures adopted by the authorities of the US Government.
Regarding the impact or possible external effects, the ABA recalled that the country experienced the precedent of the 2008 global crisis and, thanks to the regulations following the 2003 crisis and the continuous strengthening of the banking sector in capitalization, comprehensive risk management, and innovation, the local system was not affected.
In that order, he sent a message of reassurance to the productive sectors and customers in general: “We have monetary and financial authorities who, together with the rest of the system, remain monitoring, attentive and with a proactive attitude towards any situation.”.
90% of the resources managed by multiple banks are invested in market instruments, which are used to manage loans that drive the national economy.
“As an association, we consider it vital that we all contribute to preserving the well-earned trust in the banking sector.” – Association of Multiple Banks of the Dominican Republic
What economists say
For economist Haivanjoe Ng Cortiñas, the financial stampede that led to the closure of SVB is an event that should not be viewed in isolation. “The possibility of a domino effect, in that other bankruptcies could occur and this is not an isolated event, should not be underestimated,” he said.
The situation facing a portion of the US banking sector is still developing, so its implications for the Dominican economy and its banking system are not yet entirely predictable, even though US banks with financial problems are not jointly responsible for Dominican financial entities, he noted.
The economist addressed as another consequence the persistent inflationary issue in the US economy, given that core inflation in February stood at 0.5%, the highest in five months. This could continue to force the Federal Reserve System (Fed - Central Bank) to raise its interest rate and, consequently, put pressure on the financial state of banking entities in that country, as one of the variables that have influenced the current situation of some banks.
The predictable continuation of Fed rate hikes may lead Dominican authorities to resume raising monetary interest rates, resulting in increased bank interest rates and causing the Dominican gross domestic product (GDP) to maintain the "poor performance" it recorded in January 2023, at just 0.4%, he said.
