roach151_ TIMOTHY A. CLARYAFP via Getty Images)_svb collapse TIMOTHY A. CLARY/AFP via Getty Images)

How China Benefits from Another US Banking Crisis

Today, we are witnessing a potentially lethal interplay between two sources of tension: a financial crisis, reflected in the failure of Silicon Valley Bank, and a geostrategic crisis, reflected in the deepening cold war between the United States and China. The outcome is likely to be greater than the sum of the parts.

BEIJING – No two crises are alike. That is true of recent financial upheavals – the Asian financial crisis of the late 1990s, the dot-com crisis of 2000, and the global financial crisis of 2008-09. It is also the case with crises sparked by geostrategic shocks, such as wars, pestilence, famine, and pandemics.

Today, we are witnessing a potentially lethal interplay between these two sources of upheaval: a financial crisis, reflected in the failure of Silicon Valley Bank, and a geostrategic crisis, reflected in the deepening cold war between the United States and China. While the origins of each crisis are different, in one sense it doesn’t really matter: The outcome of their interaction is likely to be greater than the sum of the parts.

The failure of SVB is symptomatic of a far bigger problem: a US financial system that is woefully unprepared for the return of inflation and the concomitant normalization of monetary policy. SVB risk managers were in deep denial of such an outcome, and the bank was brought down by sharp losses on its unhedged $124 billion bond portfolio, triggering a classic bank run by fearful depositors.

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