Worries about recent bank failures and bailouts are rippling through the world economy, from New York to Beijing, and central bankers are working to calm depositors and financial markets. Mike O’Sullivan reports from California, where a major player in the tech industry, Silicon Valley Bank, collapsed earlier this month. Rob Garver contributed.
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The Federal Reserve extended its year-long fight against high inflation Wednesday by raising its key interest rate by a quarter-point despite concerns that higher borrowing rates could worsen the turmoil that has gripped the banking system. 

“The U.S. banking system is sound and resilient,” the Fed said in a statement after its latest policy meeting ended. 

At the same time, the Fed warned that the financial upheaval stemming from the collapse of two major banks is “likely to result in tighter credit conditions” and “weigh on economic activity, hiring and inflation.” 

The central bank also signaled that it’s likely nearing the end of its aggressive streak of rate hikes. In a statement, it removed language that had previously indicated it would keep raising rates at upcoming meetings. The statement now says “some additional policy firming may be appropriate” — a weaker commitment to future hikes. 

And in a series of quarterly projections, the policymakers forecast that they expect to raise their key rate just one more time – from its new level Wednesday of about 4.9% to 5.1%, the same peak level they had projected in December. 

Still, in its latest statement, the Fed included some language indicating its inflation fight remains far from complete. It said hiring is “running at a robust pace” and noted that “inflation remains elevated.” 

 

It removed a phrase — “inflation has eased somewhat” — it had included in its previous statement in February. 

Speaking at a news conference, Chair Jerome Powell said, “The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.” 

The latest rate hike suggests that Powell is confident the Fed can manage a dual challenge: Cool still-high inflation through higher loan rates, while defusing turmoil in the banking sector through emergency lending programs and the Biden administration’s decision to cover uninsured deposits at the two failed banks. 

The Fed’s signal that the end of its rate-hiking campaign is in sight may also soothe financial markets as they digest the consequences of the U.S. banking turmoil and the takeover last weekend of Credit Suisse by its larger rival UBS. 

The central bank’s benchmark short-term rate has now reached its highest level in 16 years. The new level likely will lead to higher costs for many loans, from mortgages and auto purchases to credit cards and corporate borrowing. The succession of Fed rate hikes also has heightened the risk of a recession. 

The Fed’s new policy decision reflects an abrupt shift. Early this month, Powell had told a Senate panel that the Fed was considering raising its rate by a substantial half-point. At the time, hiring and consumer spending had strengthened more than expected, and inflation data had been revised higher. 

The troubles that suddenly erupted in the banking sector two weeks ago likely led to the Fed’s decision to raise its benchmark rate by a quarter-point rather than a half-point. Some economists have cautioned that even a modest quarter-point rise in the Fed’s key rate, on top of its previous hikes, could imperil weaker banks whose nervous customers may decide to withdraw significant deposits. 

Silicon Valley Bank and Signature Bank were both brought down, indirectly, by higher rates, which pummeled the value of the Treasurys and other bonds they owned. As anxious depositors withdrew their money en masse, the banks had to sell the bonds at a loss to pay the depositors. They couldn’t raise enough cash to do so. 

After the fall of the two banks, Credit Suisse was taken over by UBS. Another struggling bank, First Republic, has received large deposits from its rivals in a show of support, though its share price plunged Monday before stabilizing. 

The Fed is deciding, in effect, to treat inflation and financial turmoil as two separate problems, to be managed simultaneously by separate tools: Higher rates to address inflation and greater Fed lending to banks to calm financial turmoil. 
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The International Monetary Fund has approved a nearly $3 billion financial rescue package for Sri Lanka after several months of negotiations with the economically troubled South Asian island nation.   

The IMF announced Monday that it will immediately release about $333 million to Colombo. The institution said Sri Lanka must undertake a set of economic reforms and anti-corruption strategies as part of the bailout agreement. 

The rescue package was approved only after China, India and Japan, Sri Lanka’s biggest international creditors, agreed to a debt restructuring strategy.  

Sri Lankan President Ramil Wickremesinghe’s office issued a statement saying the agreement will bring in up to $7 billion from the IMF and other international financial institutions. President  Wickremesinghe has already pushed through a number of economic reforms, including raising income taxes and ending generous subsidies for fuel and electricity.  

Sri Lanka’s tourism-dependent economy was devastated by the COVID-19 pandemic, as well as a set of disastrous decisions made by former President Gotabaya Rajapaksa, which depleted its foreign exchange reserves and left it unable to import food, fuel or medicines. Sri Lankans had to endure days of lengthy power outages 

The crisis sparked a popular and often violent uprising that led Gotabaya Rajapaksa to flee Sri Lanka and resign from office, effectively ending his family’s two-decade hold on political power. His brothers Mahinda and Basil also quit their posts as prime minister and finance minister, respectively, amid the anti-government demonstrations.    

Some information for this report came from The Associated Press, Reuters, Agence France-Presse.  
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Amazon plans to eliminate 9,000 more jobs in the next few weeks, CEO Andy Jassy said in a memo to staff Monday. 

The job cuts would mark the second largest round of layoffs in the company’s history, adding to the 18,000 employees the tech giant said it would lay off in January. The company’s workforce doubled during the pandemic, however, during a hiring surge across almost the entire tech sector. 

Tech companies have announced tens of thousands of job cuts this year. 

In the memo, Jassy said the second phase of the company’s annual planning process completed this month led to the additional job cuts. He said Amazon will still hire in some strategic areas. 

“Some may ask why we didn’t announce these role reductions with the ones we announced a couple months ago. The short answer is that not all of the teams were done with their analyses in the late fall; and rather than rush through these assessments without the appropriate diligence, we chose to share these decisions as we’ve made them, so people had the information as soon as possible,” Jassy said. 

The job cuts announced Monday will hit profitable areas for the company including its cloud computing unit AWS and its burgeoning advertising business. Twitch, the gaming platform Amazon owns, will also see some layoffs as well as Amazon’s PXT organizations, which handle human resources and other functions. 

Prior layoffs had also hit PXT, the company’s stores division, which encompasses its e-commerce business as well as the company’s brick-and-mortar stores such as Amazon Fresh and Amazon Go, and other departments such as the one that runs the virtual assistant Alexa. 

Earlier this month, the company said it would pause construction on its headquarters building in northern Virginia, though the first phase of that project will open this June with 8,000 employees. 

Like other tech companies, including Facebook parent Meta and Google parent Alphabet, Amazon ramped up hiring during the pandemic to meet the demand from homebound Americans that were increasingly making purchases online. 

Amazon’s workforce, in warehouses and offices, doubled to more than 1.6 million people in about two years. But demand slowed as the worst of the pandemic eased. The company began pausing or canceling its warehouse expansion plans last year. 

Amid growing anxiety over the potential for a recession, Amazon in the past few months shut down a subsidiary that’s been selling fabrics for nearly 30 years and shuttered its hybrid virtual, in-home care service Amazon Care among other cost-cutting moves. 

Jassy said Monday given the uncertain economy and the “uncertainty that exists in the near future,” the company has chosen to be more streamlined. 

He said the teams that will be impacted by the latest round of layoffs are not done making final decisions on which roles will be eliminated. The company plans to finalize those decisions by mid- to late April and notify those who will be laid off. 
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UBS is set to take over its troubled Swiss rival Credit Suisse for $3.25 billion following weekend crunch talks aimed at preventing a wider international banking crisis, but Asian equities sank Monday on lingering worries about the sector.   

The deal, in which Switzerland’s biggest bank will take over the second largest, was vital to prevent economic turmoil from spreading throughout the country and beyond, the Swiss government said.   

The move was welcomed in Washington, Frankfurt and London as one that would support financial stability, after a week of turbulence following the collapse of two U.S. banks.   

After a dramatic day of talks at the finance ministry in Bern — and with the clock ticking towards the markets reopening on Monday — the takeover was announced at a news conference.   

Swiss President Alain Berset was flanked by UBS chairman Colm Kelleher and his Credit Suisse counterpart Axel Lehmann, along with the Swiss finance minister and the heads of the Swiss National Bank (SNB) and the financial regulator FINMA.   

The wealthy Alpine nation is famed for its banking prominence and Berset said the takeover was the “best solution for restoring the confidence that has been lacking in the financial markets recently”.   

If Credit Suisse went into freefall, it would have had “incalculable consequences for the country and for international financial stability”, he said.   

Credit Suisse said in a statement that UBS would take it over for “a merger consideration of three billion Swiss francs ($3.25 billion)”.   

After suffering heavy falls on the stock market last week, Credit Suisse’s share price closed Friday at 1.86 Swiss francs, with the bank worth just over $8.7 billion.   

UBS said Credit Suisse shareholders would get 0.76 Swiss francs per share.   

“Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” Lehmann said.   

Asian equities still fell in early trade Monday, with Hong Kong, Tokyo, Sydney, Seoul and Singapore all in the red.   

Hong Kong’s monetary authority sought to calm jitters Monday morning, saying that “exposures of the local banking sector to Credit Suisse are insignificant”, as the bank’s assets make up “less than 0.5 percent” of the city’s banking sector.    

Despite that, the city’s banking stocks tumbled: HSBC dropped six percent, Standard Chartered shed five percent and Hang Seng Bank gave up nearly two percent, in line with a global sell-off in the sector on worries about lenders’ exposure to bonds linked to Credit Suisse.   

“Uncertainty could remain high for quite some time, even if recent bank support measures succeed,” said analyst Stephen Innes of SPI Asset Management.     

‘Huge collateral damage’ risk    

Swiss Finance Minister Karin Keller-Sutter said that bankruptcy for Credit Suisse could have caused “huge collateral damage”.    

With the “risk of contagion” for other banks, including UBS itself, the takeover has “laid the foundation for greater stability both in Switzerland and internationally”, she said.   

The deal was warmly received internationally.   

The decisions taken in Bern “are instrumental for restoring orderly market conditions and ensuring financial stability,” said European Central Bank chief Christine Lagarde.   

“The euro area banking sector is resilient, with strong capital and liquidity positions.”   

U.S. Federal Reserve chair Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement: “We welcome the announcements by the Swiss authorities today to support financial stability.”   

The sentiment was echoed by British Finance Minister Jeremy Hunt.   

The Fed and the central banks of Canada, Britain, Japan, the EU and Switzerland announced they would launch a coordinated effort Monday to improve banks’ access to liquidity.   

The SNB announced 100 billion Swiss francs of liquidity would be available for the UBS-Credit Suisse takeover.   

Keller-Sutter insisted the deal was “a commercial solution and not a bailout”.  

UBS chairman Kelleher said: “We are committed to making this deal a great success. UBS will remain rock solid.”   

Job worries   

The takeover creates a banking giant such as Switzerland has never seen before — and raises concerns about possible layoffs.   

The Swiss Bank Employees Association said there was “a great deal at stake” for the 17,000 Credit Suisse staff, plus tens of thousands of jobs outside of the banking industry potentially at risk.   

Like UBS, Credit Suisse was one of 30 worldwide Global Systemically Important Banks — deemed of such importance to the international banking system that they are colloquially called “too big to fail”.   

But the markets saw the bank as a weak link in the chain.   

Amid fears of contagion after the collapse of two U.S. banks, Credit Suisse’s share price plunged by more than 30% on Wednesday to a record low of 1.55 Swiss francs. That saw the SNB step in overnight with a $54-billion lifeline.   

After recovering some ground Thursday, its shares closed down 8% on Friday at 1.86 Swiss francs, as it struggled to retain investor confidence.   

In 2022, the bank suffered a net loss of $7.9 billion and expects a “substantial” pre-tax loss this year.   

Credit Suisse’s share price has tumbled from 12.78 Swiss francs in February 2021 due to a string of scandals that it has been unable to shake off. 
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When Caroline Sadaka buys groceries in the Lebanese capital Beirut, she keeps her phone in hand – not to check her shopping list but to calculate the spiraling costs of goods now priced at volatile exchange rates that vary by store and sector.

As Lebanon’s economy continues to collapse, an array of exchange rates for the local pound has emerged, complicating personal accounting and dimming hopes of fulfilling a reform requirement set out by the International Monetary Fund.

The government’s official exchange rate was set at 15,000 pounds to the U.S. dollar in February, a nearly 90% devaluation from the longtime peg of 1507.5.

But the Central Bank is selling dollars at a rate of 79,000 to the greenback while the finance minister intends to calculate tariffs for imported goods at 45,000 pounds.

The parallel market rate is meanwhile hovering around 107,000 pounds and changing daily. Supermarkets and fuel stations are required to post signs with the value they’ve adopted for the day, but the rate is changing so fast that many are pricing in the relatively stable U.S dollar instead.

Examining a can of tuna, Sadaka illustrated the daily quandary faced by shoppers. “This doesn’t have a (logical) price. If you look, it’s in Lebanese pounds, so is this the price? Or is this an old price, and there’s now a price in dollars?,” she wondered.

She quit her job as a school teacher which paid her in local currency, the value of which has decreased by more than 98% against the dollar on the parallel market since 2019.

That’s when the economy began unravelling after decades of unsound financial policies and alleged corruption.

To solve the exchange rate confusion, the government needs to implement one unified rate. This is among pre-conditions set by the International Monetary Fund nearly a year ago for Lebanon to get a $3 billion bailout.

But the lender of last resort says reforms have been too slow. They have met resistance from politicians who are shielding vested interests and dodging accountability.

In the meantime, the country has been moving towards a cash-based and dollarized economy given spiralling inflation and restrictions by banks on transactions.

Shop owner Mahmoud Chaar told Reuters the exchange rate was changing so fast that his business was losing money overnight.

Like many business owners, Chaar has to pay in U.S. dollars to import goods but sells in Lebanese pounds. One day, he had sold all his goods based on one rate but woke up the next to find it had jumped nearly 10,000 pounds per U.S. dollar.

“Basically, we lost in the exchange rate difference what we had made in profit,” Chaar told Reuters.

Economist Samir Nasr said the varying rates across sectors were making personal accounting “messy” for Lebanese and unifying them was more urgent than ever.

“What is required is a full group of reforms and steps that will allow for the economic situation to stabilize in general – and would then allow the exchange rate to be unified,” he said.
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When the U.S. government announced this month that it had stepped in to take over Silicon Valley Bank (SVB) and Signature Bank, it was a 90-year-old Great Depression-era agency that took the lead in assuring depositors that their funds were safe and quelling a bank run that threatened broader damage to the industry.

The Federal Deposit Insurance Corp. took control of SVB on March 10 and Signature Bank two days later, moves that rendered the publicly traded stock of both institutions worthless but preserved other assets for distribution to account holders and each bank’s creditors.

In a decision some found surprising, the FDIC announced that all deposits held at both banks would be fully guaranteed. Historically, depositors have been protected up to $250,000, a limit designed to keep the overwhelming majority of individual depositors safe from loss.

The agency decided, however, that to prevent “contagion” — panic about one failing bank spreading to broader panic about others — it would make all depositors whole.

The decision was also likely motivated by the fact that many businesses, primarily in the tech sector, kept large accounts at SVB that they used to meet payroll and ordinary business expenses. The impact of so many companies suddenly being unable to pay thousands of employees would have been hard to estimate but could have potentially damaged the economy.

The FDIC and the Biden administration were quick to deny that the two banks had been the subjects of a “bailout,” stressing that bank executives had been fired, stockholders’ equity had been wiped out, and any funds supplied by the agency to make depositors whole would come from an insurance fund financed by premiums paid by insured banks.

The FDIC, however, will have to raise assessments on banks to replenish what money it spends on the resolution of SVB and Signature. Banks will likely pass these costs on to their customers by charging higher fees or increasing interest on loans.

 

History of the FDIC

The FDIC was created in 1933, after the U.S. weathered years of panic during the Great Depression, which led to the closures of thousands of banks. Between 1921 and 1929, approximately 5,700 banks across the U.S. failed, some because of poor management and many because depositors lost confidence and demanded withdrawals so rapidly that the banks simply ran out of cash.

Things worsened between 1929 and 1933, when nearly 10,000 banks across the country failed. During a particularly difficult week in February 1933, bank panics were so pervasive that governors in almost all U.S. states acted to temporarily close all banks.

The FDIC was created in the aftermath of that crisis, when the federal government finally acted on a long-delayed plan to establish national deposit insurance. The agency originally guaranteed individual deposits of up to $2,500, a level that has been periodically increased over the decades.

The agency is funded by premiums that banks and savings associations pay for deposit insurance coverage. It is managed by a board of five presidential appointees. The current chair of the FDIC is Martin J. Gruenberg. By statute, the director of the Consumer Financial Protection Bureau and the Comptroller of the Currency, whose agency supervises nationally chartered banks, are also members. Two other appointees round out the board, which cannot have more than three members of the same political party.

In its nine decades, the FDIC has closed hundreds of failed banks, but insured deposits have always been repaid in full.

Promoting financial stability

“The mission of the FDIC is to promote financial stability,” said Diane Ellis, the former director of the agency’s Division of Insurance and Research. “The FDIC does that by exercising several authorities. One is to provide deposit insurance so that bank depositors can be confident that they’ll get their money back regardless of what happens with their bank.”

In addition, the agency has the authority to “resolve” failed banks, which can involve selling the bank outright to another institution, creating a “bridge” bank that provides ongoing services to depositors while the agency works toward a resolution, or selling off the bank’s assets to return as much money as possible to depositors whose holdings exceed the coverage limit.

Ellis, now a senior managing director at the banking network IntraFi, noted that the agency also has oversight authority over the banks it insures.

“For open banks, examiners conduct regular examinations to make sure banks are operating in a safe and sound manner … promoting a healthy, stable banking system, which is important for economic growth,” she told VOA.

 

Avoiding ‘moral hazard’

When the FDIC was established, capping the standard insurance amount per depositor was a central feature of its design. The creators of the agency were concerned about a problem called “moral hazard.” They worried that if the federal government guaranteed 100% of deposits, individuals and businesses would fail to exercise due diligence when deciding what banks to trust with their money, and that lack of scrutiny would result in banks taking excessive risks.

“Legislators wanted to strike a balance, to protect people up to a certain amount, but not everything, so that there’d be an incentive for people to make sure that their money was in a safe bank rather than a dangerous one,” said John Bovenzi, who served as chief operating officer and deputy to the chairman of the FDIC from 1999 to 2009.

Bovenzi, the co-founder of the Bovenzi Group, a financial services consultancy, told VOA that he was initially surprised by the decision of the FDIC and other regulators to make all uninsured depositors whole.

“These weren’t the largest institutions. Silicon Valley and Signature, they were in sort of a second tier and weren’t viewed as ‘too big to fail,'” he said.

However, Bovenzi said, it soon became apparent to regulators that there were other banks in the country that operated with business models similar to that of SVB, which had large amounts of low-interest securities on its books, the value of which was being systematically undercut by the Federal Reserve’s decision to raise interest rates dramatically over the past year.

“What happened was that they saw there was too much spillover effect to other institutions, so they invoked what’s called a ‘systemic risk exception,'” he said. Had this not been the case, he said, the FDIC would have had to conduct the closing in a way that resulted in the least cost to it and the government to save money, “and that would have meant uninsured taking losses. By protecting the uninsured, the FDIC raises its own costs to cover it. And so it needed to say, ‘We don’t want to do it for the institution, but we need to do it for the system.'”

Setting a precedent

The decision to protect all deposits at SVB and Signature was not unique. During the financial crisis sparked by widespread defaults in the subprime mortgage sector from 2007 to 2010, regulators shuttered several hundred banks in the space of a few years, and implemented a policy of protecting all deposits to avoid increasing the damage to the broader economy.

The decision to do so for SVB and Signature, though, absent such a widespread crisis, has raised questions about whether a precedent has been set that will lead depositors to expect to be rescued by the government if their bank fails.

In testimony before Congress Thursday, Treasury Secretary Janet Yellen warned that the treatment of SVB and Signature should not be taken as a signal that similar protection will be extended to other banks in the future.

Such action, she said, would take place only when “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”
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The collapse of Silicon Valley Bank has caused panic not just in the U.S. tech industry but also in China, where the bank has been a key player for years among Chinese startups.

In recent days, many startups in China have issued statements to reassure their investors that their deposits with SVB will not impact their operations.

Before the bank failed and was taken over by U.S. regulators this month, Silicon Valley Bank was the 16th-largest American bank. In foreign markets, SVB’s reputation for financing about half of all U.S. venture-backed technology and health care companies made it a popular choice for companies, including those based in China and backed by U.S. venture capitalists.

BeiGene, one of China’s largest biotech companies that specializes in the development of cancer drugs, said that the collapse of SVB would have “no major impact” on its operations, and that its uninsured cash deposits in Silicon Valley Bank totaled only $175 million, or about 3.9% of its cash and other investments.

Zai Lab, a biopharmaceutical company headquartered in Shanghai, issued a statement saying that SVB’s collapse would have no impact on its operations, including the ability to pay wages and make payments to third parties.

Other startups, including Andon Health, Sirnaomics, Everest Medicines and Jacobio Pharma, have issued similar statements.

After SVB failed, the Biden administration stepped in and ensured that all customers would be able to get their deposits back, even those who had more than $250,000 in their accounts. That’s the maximum amount that the Federal Deposit Insurance Corporation typically covers when a bank fails, but more than 90% of Silicon Valley Bank accounts were above that amount.

With their SVB deposits frozen, many companies could have been at risk of failing themselves, so the Biden administration said it would step in to guarantee they would get their funds back.

FDIC reimbursements for Chinese customers?

On Chinese social media, there has been concern that the reimbursements may apply only to customers in America.

“Is it true that only depositors who are U.S. citizens can get their money back? What about us?” asked one post on Weibo, the Chinese version of Twitter.

William Hanlon, a partner at Seyfarth Shaw LLP, told VOA Mandarin in an email that the FDIC as receiver “will not categorize account holders by nationality” and “will treat all depositors equally based on their status as depositors.”

David M. Bizar, another partner at Seyfarth Shaw, said the FDIC is continuing to operate SVB as a full-service bridge bank while it searches for buyers of the bank’s assets.

“It can be expected that the United States will continue to maintain these deposit accounts and keep them from losing their value so long as it maintains them in its receivership, and that the FDIC as receiver will not sell these deposit accounts to purchasers who would be permitted under the sale agreements to reduce their values after the transfers,” he told VOA.

So far, several Chinese companies have publicly said they were able to withdraw all their deposits at SVB.

SVB’s role in China

The now-failed SVB carved out a unique role in the Chinese banking scene. It served roughly 2,200 clients and advised government regulators who were eager to build the country’s tech sector. The Santa Clara, California-based bank supported startup companies that not all banks, especially the big commercial ones in China, would accept because of higher risks.

In 2010, then-CEO Ken Wilcox brought the entire board of directors to China to showcase the importance he attached to the China market, according to Chinese media reports. In a 2019 interview, when he was SVB’s chief credit officer, he said SVB was “a model bank for China.”

SVB approached China in two different ways. One involved wholly owned operations in major tech centers, including Beijing, Shenzhen and Shanghai, where it advised startups on how to manage overseas funding. The other involved a 50-50 joint-venture with Shanghai Pudong Development Bank, also known as SPD Silicon Valley bank, that operates under a similar model as SVB.

Following the collapse of SVB, the Chinese policymakers signaled stricter oversight to improve financial market security.

The South China Morning Post quoted Liu Xiaochun, deputy director of the Shanghai Finance Institute, as saying it was inappropriate to set up a similar specialist bank in China.

He argued that to avoid potential losses in supporting tech and health startups, large commercial banks should establish branches to finance innovation, while managing risk exposure at headquarters.
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China’s central bank on Friday announced a cut to the amount of cash banks are required to hold in reserve for the first time this year, in a move designed to shore up an economy weakened by the pandemic.

The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio by 0.25 percentage point starting March 27, which would allow commercial banks to lend more to businesses.

This would bring the weighted average reserve requirement ratio for financial institutions to around 7.6%, the central bank said.

The PBOC said the latest cut was intended to “improve the level of service to the real economy.”

The rate was last cut in November, when the world’s second-largest economy was heavily hit by strict COVID-19 curbs.

China is still grappling with the fallout of its zero-COVID policy, which included harsh lockdowns and mass business closures, hitting supply chains and employment.

The country has set an economic growth target of “around 5%” for 2023, one of the lowest in decades.

Authorities reported a rebound in retail sales in January and February, after the country abandoned zero-COVID controls and a massive exit wave of infections quickly subsided.

But Premier Li Qiang has warned that the growth target was “not easy” to achieve as a grinding property crisis continued and global demand slowed.
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U.S. Treasury Secretary Janet Yellen told lawmakers on Thursday the U.S. banking system remains sound even though two regional banks failed in the last week.

She told the Senate Finance Committee that Americans “can feel confident” their deposits “will be there when they need them.”

Yellen said the government “took decisive and forceful actions to strengthen public confidence” in the U.S. banking system by ensuring that all depositors, including those holding uninsured funds exceeding $250,000, were protected by federal deposit insurance when Silicon Valley Bank and Signature Bank collapsed.

Some critics of the government’s action have called it a bailout, but investors have lost their financial stakes in the two banks, something that would not occur in the normal definition of a bailout, and their executives have been fired.

Senator Mike Crapo of Idaho, the committee’s lead Republican, said, “I’m concerned about the precedent of guaranteeing all deposits,” calling the federal rescue action a “moral hazard.”

“Nerves are certainly frayed at this moment,” said Democratic committee chairman Senator Ron Wyden. “One of the most important steps the Congress can take now is make sure there are no questions about the full faith and credit of the United States,” referring to raising the country’s $31.4 trillion debt ceiling in the next few months so the government can borrow more money to continue to pay its bills.

Some Republicans have demanded large spending cuts in exchange for raising the debt ceiling, while the White House has requested passage of a debt limit increase that is not tied directly to spending cuts. Both Republican and Democratic lawmakers have said they will not cut health insurance and pensions for older Americans.

Stock markets in both Europe and the U.S. rallied sharply Thursday after Credit Suisse announced it would borrow almost $54 billion from the Swiss central bank to shore up its finances.
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