1.

Bagaimana kebijakan moneter "uang ketat" melalui peningkatan suku bunga dapat
mempengaruhi inflasi dan pengangguran dalam jangka panjang? Berikan penjelasan
dengan contoh real yang disebutkan dalam artikel

Jawaban: Rising interest rates encourage fund owners to place their funds in banks. Funds that
are saved mean spending is reduced, or consumptive behavior can be restrained so that
inflation can be suppressed. this policy resulted in a sluggish economy and unemployment
above its natural level.

Example from article

In the past year, many central banks, including the Fed and Bank Indonesia, have raised
interest rates. This tightening policy is to reduce the money in circulation which aims to
reduce inflation. Since 2022, inflation has continued to show a declining pattern.

Example 1
In the early 1980s, the government increased interest rates in response to higher inflation.
This caused inflation to peak in 1980 and then fall.

Example 2
The inflation rate in the U.S. has gone up
by almost three times its average rate of
2%. It is a prime concern and an alarming
condition for the Federal Reserve. Thus,
on May 3-4, 2022, the Federal Reserve
raised the interest rates by half percent in
the U.S. to bring down the price inflation
across the U.S.

2. Jelaskan dampak dari kebijakan "uang longgar" dalam memacu pertumbuhan ekonomi. Apa
saja trade-off yang mungkin terjadi dan apasaja implikasinya?

Jawaban: It usually lasts a long time due to it being loved by the public, therefore this
continuity resulted in faster economic growth than the normal rate, thereby driving inflation.
A trade-off occurred, the achievement of one policy target at the expense of another policy
target. Achieving the economic growth target resulted in difficulties in controlling inflation.

Countries that do not need high growth can focus on single-

target inflation control. Countries with conditions like this
will facilitate the implementation of monetary policy. This
usually occurs in countries with stagnant population growth.

During a recession, loose monetary policy can help the

economy recover by sparking aggregate demand because
individuals and firms are able to borrow more to spend and
invest.
3. Bagaimana siklus moneter -kenaikan dan penurunan suku bunga -mempengaruhi
pertumbuhan ekonomi dan stabilitas sektor keuangan? Berikan contoh berdasarkan krisis
yang disebutkan dalam artikel.

Jawaban: Holding low interest rates for too long is dangerous. Unless it is applied under
certain conditions when implementing a loose money policy, which among other things
avoids the possibility of relaxation of rules in the banking sector and the financial sector in
general.

When central banks lower interest rates, borrowing becomes cheaper. This encourages
individuals and businesses to take loans for investment and consumption purposes.

If interest rates remain low for an extended period and credit is extended too liberally, it can
lead to excessive risk-taking and the buildup of financial imbalances, potentially jeopardizing
financial sector stability.

Examples from article

The Review of the Banking Act in the US (Glass-Steagall) is an example. Created in 1933,
this regulation seeks to separate commercial banks and investment banks.

In Indonesia, the banking sector experienced deregulation, such as mandatory reserves which
decreased drastically. In the US case, implementing a low interest rate policy after 9/11
resulted in the rise of risky housing loans

Almost the same pattern occurred at the start of the 2020 pandemic. Monetary policy was to
stimulate the economy by lowering interest rates to close to 0 percent, making it easier to
extend credit.

Example 1 (lowering interest rates)

During the global financial crisis of 2008, central banks around the world implemented
significant interest rate cuts to stimulate economic growth and counteract the negative effects
of the crisis. For instance, the Federal Reserve in the United States lowered the federal funds
rate to near-zero levels, aiming to encourage borrowing and spending to revive the economy.

Example 2 (Increasing interest rates)

The 1980s Latin American debt crisis serves as an example of how increases in interest rates
can impact economic growth. To combat inflation and attract foreign capital, many Latin
American countries raised their interest rates sharply. These higher rates made it difficult for
businesses and governments to service their debt, leading to a severe economic downturn in
the region.

Example 3 (Financial Stability)

The housing bubble and subsequent global financial crisis of 2008 were fueled, in part, by a
prolonged period of low interest rates. Easy access to cheap credit led to a surge in mortgage
lending and the creation of complex financial products, which ultimately contributed to the
collapse of the housing market and widespread financial instability.
4. Apa hubungan antara relaksasi aturan dan periode siklus positif dalam perekonomian?
Jelaskan dampak dari relaksasi aturan berdasarkan contoh kasus dalam artikel.

Jawaban: The relationship between the relaxation of rules and positive cycles in the economy
can be complex and context-dependent. In some cases, easing regulations can stimulate
economic growth and contribute to positive cycles, while in other situations, it may lead to
negative outcomes.

Case Example 1
The Dotcom Bubble (late 1990s): During the dotcom boom, there was a significant relaxation
of rules and regulations in the technology and internet sectors. This created a favorable
environment for innovation, entrepreneurship, and investment in internet-related companies.

Case Example 2
In the early 2000s, there was a relaxation of regulations in the financial sector, particularly in
the United States. The loosening of rules on mortgage lending and the securitization of
mortgages fueled an increase in home ownership and lending. This initially contributed to
positive cycles in the housing market and broader economy. However, excessive risk-taking,
lax lending standards, and the creation of complex financial products ultimately led to the
subprime mortgage crisis and the global financial crisis of 2008.

the relaxation of rules initially stimulated economic growth, leading to positive cycles.
However, the lack of proper oversight and regulation eventually resulted in unsustainable
practices, speculative bubbles, and subsequent economic downturns.

Case Example 3 (Great Recession, 2008)

As mentioned earlier, the relaxation of rules in the financial sector, including the loosening of
mortgage lending standards and inadequate oversight, contributed to the subprime mortgage
crisis and the subsequent global financial crisis. The absence of robust regulations allowed for
the proliferation of risky lending practices, complex financial products, and excessive
leverage. This led to a negative cycle of financial instability, with severe consequences for the
global economy.

In these cases, the relaxation of rules exposed the economy to risks and negative outcomes.
Insufficient oversight and weak regulations allowed for the exploitation of loopholes, market
manipulation, and the buildup of systemic risks, ultimately leading to economic crises.

5. Bagaimana peran suku bunga rendah dalam memicu krisis finansial global pada 2008
dan krisis perbankan awal 2023? Jelaskan mekanisme di balik hal tersebut.

Jawaban: Low interest rates played a significant role in triggering both the global financial
crisis in 2008 and the banking crisis in early 2023. The mechanism behind this can be
understood through the concept of "easy money" and its impact on lending, risk-taking, and
financial imbalances.

Global Financial Crisis (2008)

The years leading up to the 2008 crisis, central banks, including the U.S. Federal Reserve,
implemented a prolonged period of low interest rates. This was done to stimulate economic
growth and address the aftermath of the dotcom bubble burst and the 9/11 terrorist attacks.
  Easy access to credit: Low interest rate environment resulted in several key factors
that contributed to the crisis: Easy access to credit: Low interest rates made
borrowing cheaper and more attractive for individuals, businesses, and financial
institutions.

 Housing market boom: The increased availability of credit, combined with low
interest rates, fueled a housing market boom.

 financial innovation and complex products: Financial institutions took advantage of

the low interest rate environment and engaged in increasingly complex financial
engineering.

 Excessive risk-taking and leverage: The combination of easy credit, a booming

housing market, and the belief in the stability of financial innovations led to excessive
risk-taking and leverage.

Banking Crisis (Early 2023)

Low interest rates can potentially play a role in triggering such a crisis through similar
mechanisms as in the global financial crisis. The specific factors leading to the crisis would
depend on the context and underlying conditions at the time. However, some general
considerations could include:

 Search for yield: In a prolonged low interest rate environment, financial institutions
may face challenges in generating sufficient returns on their traditional lending and
investment activities.

 Excessive risk-taking and debt accumulation: Persistently low interest rates can
incentivize financial institutions to engage in riskier lending practices and accumulate
high levels of debt.

 Asset price bubbles: Low interest rates can contribute to the formation of asset price
bubbles, as investors chase higher returns in a low-yield environment.
 Dependence on low rates: If financial institutions become heavily reliant on low
interest rates to sustain their profitability or manage their existing debt burden, any
sudden shift or increase in interest rates can expose vulnerabilities and create
financial stress.
It's important to note that the causes of a banking crisis can be multifaceted and
influenced by various factors beyond just low interest rates.

The monetary policy dilemma, between tightening or easing, is inherent in the central bank's
role of maintaining price stability and supporting economic growth. While it may be
challenging to completely avoid this dilemma, there are potential solutions that can help
address it.

 Communication and transparency: Clear and effective communication by central

banks is crucial in managing expectations and minimizing uncertainty.
  Data-driven policy decisions: Central banks should rely on comprehensive and
reliable data to guide their policy decisions. Robust data collection, analysis, and
modeling can improve the accuracy of economic forecasts, enabling central banks to
make more informed and appropriate policy choices.

 Long-term orientation: Central banks should consider the long-term implications of

their policy decisions. While short-term considerations are important, policymakers
should also account for potential consequences and risks in the future.
 Coordination with other policy tools: Monetary policy should be complemented by
other macroeconomic policies, such as fiscal policy and structural reforms.

 Flexibility and adaptability: Central banks need to be flexible and adaptable to

changing economic conditions.

specific approach and solutions may vary depending on the economic context, institutional
framework, and specific challenges faced by each central bank.

Silicon Valley Bank

1. Explain the concept of risk concentration and its role in SVB's collapse. How did the high
level of concentration in both assets and liabilities contribute to the bank's failure?

Answer: First, SVB is a classic example of the danger of a high level of concentration, both
in terms of assets and liabilities, in one bank. It is a classic example of bad diversification of
risks. It is an illustration of ancient advice in financial science: Do not put all your eggs in one
basket. Just look at this data: most of the sources of funds (liabilities) (67 percent) were
concentrated on technology companies. On the asset side, around 58 percent was invested in
US government bonds and mortgage-backed securities (MBS).

The Fed’s funds rate will rise to 5.75-6 percent. Rising interest rates have caused the value of
bonds and MBS to fall. As a result, the value of SVB's assets suffered a significant decline.

On March 8, 2022 SVB sold its assets amounting to $21 billion, resulting in a loss of $1.8
billion. SVB incurred losses. Seeing this condition, the depositors were worried and started
withdrawing their money from SVB. As a result, SVB was unable to pay back the money of
its depositors.

Concentration in Assets

Lack of diversification: Concentration in assets indicates a lack of diversification in SVB's

investment portfolio. By having a significant exposure to a specific sector or type of asset, the
bank became highly susceptible to the risks associated with that particular sector. If the sector
experienced a downturn or faced significant challenges, SVB's asset value could have been
severely impacted.

Amplification of sector-specific risks: When a bank concentrates its assets in a specific sector,
it amplifies the potential risks associated with that sector.

Limited ability to withstand shocks: The lack of diversification in SVB's asset portfolio
reduced the bank's ability to absorb unexpected losses. If the concentrated assets experienced
a significant decline in value, SVB might have faced difficulties in covering its losses,
resulting in financial strain and potential insolvency.
 Concentration in Liabilities:
Dependency on specific funding sources: If a bank heavily relies on a single or a few sources
of funding, it becomes vulnerable to disruptions in those sources. If the funding dries up or
becomes more expensive, the bank may struggle to meet its financial obligations and maintain
liquidity.

Counterparty risk: Concentration in liabilities also increases counterparty risk. If a significant

portion of SVB's liabilities is concentrated with a particular counterparty, such as a large
depositor or institutional investor, the bank becomes highly exposed to the creditworthiness
and potential default of that counterparty. If the counterparty fails or withdraws its funds,
SVB may face liquidity challenges or even insolvency.

the high level of concentration in both assets and liabilities made SVB more susceptible to
sector-specific risks, limited its ability to withstand shocks, and increased its dependency on
specific sources of funding.

2. Analyse the role of risk management, regulation, and supervision in preventing banking
crises. What measures could have been taken to mitigate the risks faced by SVB and ensure
financial stability?

Answer: Poor risk management, because both assets and liabilities were highly concentrated.
There was a mismatch in the duration of assets and liabilities; short-term funds were used for
long-term asset investments, in addition to weak regulation and supervision.

Risk Management
Effective risk management practices within banks are essential for identifying, assessing, and
mitigating potential risks. Including:

 Risk identification and assessment: Banks need to have robust risk management
frameworks in place to identify and evaluate various types of risks, such as credit
risk, market risk, liquidity risk, and operational risk.

This enables them to understand their risk exposures and take appropriate measures to
manage and mitigate those risks.

 Risk diversification and portfolio management: Banks should adopt strategies that
promote diversification in their asset portfolios, reducing concentration risk.

Diversification across sectors, geographic regions, and asset classes helps mitigate the
impact of adverse events in any specific area.

 Stress testing and scenario analysis: Banks should conduct regular stress tests and
scenario analyses to assess the potential impact of adverse events on their financial
health.

This helps identify vulnerabilities and evaluate the adequacy of capital buffers and
risk management practices.

Regulation and Supervision

regulatory and supervisory frameworks are critical for maintaining stability in the banking
sector. Key measures include:
  Capital and liquidity requirements: Regulators should set prudential standards that
mandate banks to maintain adequate capital and liquidity buffers to withstand
potential losses and liquidity shocks.

Capital adequacy ratios, such as the Basel III framework, ensure banks have
sufficient financial resources to absorb losses and maintain solvency.

 Risk-based supervision: Supervisory authorities should conduct regular assessments

of banks' risk management practices, internal controls, and overall financial health.

Risk-based supervision focuses on identifying and addressing systemic risks,

monitoring compliance with regulations, and taking corrective actions when
necessary.

 Macroprudential policies: Authorities should employ macroprudential policies to

mitigate systemic risks and prevent excessive credit growth and asset price bubbles.

Mitigating Risks Faced by Silicon Valley Bank:

 Enhanced risk management practices: SVB could have implemented more robust risk
management frameworks to identify and assess risks associated with concentrated
assets and liabilities.

This would involve diversifying its asset portfolio and reducing reliance on specific
funding sources.

 Stricter regulation and supervision: Regulators and supervisory authorities should

have closely monitored SVB's risk concentrations and taken appropriate actions, such
as imposing higher capital requirements or liquidity buffers to mitigate potential
vulnerabilities.

 Improved transparency and disclosure: SVB should have provided clearer and more
comprehensive information to stakeholders regarding its risk exposures, financial
health, and risk management practices.

3. Discuss the concept of a bank run and its implications for the stability of the financial sector.
How did the fear of SVB's collapse lead to a self-fulfilling prophecy, triggering a chain effect
with other banks?

Answer: A bank run refers to a situation where a large number of depositors simultaneously
withdraw their funds from a bank due to concerns about the bank's solvency or liquidity.

Implications for Financial Stability

 Liquidity crunch: A bank run can quickly deplete a bank's available liquid assets,
causing a liquidity crunch. As depositors rush to withdraw their funds, the bank may
struggle to meet the demand for cash, potentially leading to insolvency.

 Contagion risk: A bank run at one institution can create a contagion effect, spreading
to other banks in the system. Fear and panic can lead depositors to withdraw funds
from other banks, even if those banks are financially sound. This contagion effect can
erode trust in the entire banking system and undermine financial stability.
 After SVB collapsed, Signature Bank followed. Then Credit Suisse, which had been in
trouble for some time, was taken over by UBS.

The world's Central Banks, especially The Fed, are currently in a dilemma. On one hand, they
should do monetary tightening by raising interest rates. On the other hand, there is concern
that interest rate increases will cause a stability problem in the financial sector.

The European Central Bank, for example, last week kept raising interest rates and gave
forward guidance to guide the market rather than maintaining the stability of the financial
sector. However, the problem is, there is a risk of asymmetric information that may be
sensitive to monetary policy.

In the case of SVB's collapse, the fear surrounding the bank's viability and potential
insolvency led to a self-fulfilling prophecy, triggering a chain effect with other banks. The
following process unfolded:

 Fear and loss of confidence: News or rumors about SVB's financial difficulties
created fear and loss of confidence among depositors.

 Liquidity pressures: As depositors rushed to withdraw funds, SVB faced liquidity

pressures, making it increasingly difficult for the bank to meet the demand for cash.

 Negative spiral: The withdrawal of funds from multiple banks led to a negative spiral,
putting strain on the liquidity and solvency of those institutions.

The chain effect resulting from the fear of SVB's collapse demonstrated how widespread
panic and loss of confidence can lead to a self-fulfilling prophecy. As depositors reacted to
the perceived risk, their actions put pressure on the banks, exacerbating the actual risk and
contributing to the instability of the financial sector.

4. Evaluate the potential consequences of the collapse of SVB, Signature Bank, and Credit
Suisse on the global financial system. How do these interconnected failures increase the risk
of a banking crisis and a potential repeat of the 2008 global financial crisis?

Answer: The collapse of SVB, Signature Bank, and Credit Suisse, if they were to occur, could
have significant consequences for the global financial system. The interconnected failures of
these banks increase the risk of a banking crisis and raise concerns about a potential repeat of
the 2008 global financial crisis.

 Contagion and systemic risk: The interconnectedness of the global financial system
means that the failure of one bank can have ripple effects on other financial
institutions. If SVB, Signature Bank, and Credit Suisse were to collapse, it could
trigger a contagion effect, leading to a loss of confidence in the broader banking
sector.

 Liquidity and funding strains: The collapse of these banks would create liquidity and
funding strains in the financial system. Banks rely on interbank lending and funding
markets for liquidity and short-term financing. If these banks fail, it could lead to
disruptions in these markets, making it harder for other banks to access necessary
funding.

 Loss of trust and confidence: Bank failures erode trust and confidence in the financial
system. The collapse of prominent banks like SVB, Signature Bank, and Credit
 Suisse would shake investor and depositor confidence, leading to increased caution
and potential capital flight.

 Regulatory and policy responses: The collapse of these banks could prompt regulators
and policymakers to implement stricter regulations and oversight measures. The 2008
financial crisis led to a wave of regulatory reforms aimed at enhancing financial
stability and risk management. If similar failures occur, it could trigger further
regulatory interventions, potentially impacting the operations and profitability of
banks globally.

5. Assess the potential impact of the collapse on Indonesia's economy through both the financial
and trade channels. How can common creditors and the actions of international investors
influence capital flows and economic stability in Indonesia?

Answer: The collapse of banks, such as SVB, Signature Bank, and Credit Suisse, can have
potential impacts on Indonesia's economy through both the financial and trade channels.
Additionally, the actions of common creditors and international investors can influence
capital flows and economic stability in Indonesia.

If investors in SVB have investments in the Indonesian financial market, they will study their
portfolio. If they suffer losses, it is not impossible for them to reduce their portfolio in
Indonesia, even though Indonesia has nothing to do with the origin of the shock.

If the indicators they use show worrisome signs, they will pull the portfolio. In this context,
Indonesia's risk is relatively small because the portion of foreign ownership in government
obligations is relatively small (less than 15 percent).

Financial Channel:
Capital flight: The collapse of major banks can trigger capital flight from emerging markets,
including Indonesia. Investors may become risk-averse and withdraw their investments,
seeking safer assets or jurisdictions. This can lead to a significant outflow of capital from
Indonesia, putting pressure on its financial system and currency.

Market disruptions: Bank failures can lead to market disruptions, volatility, and declines in
asset prices. This can affect the valuation of Indonesian financial assets, including stocks and
bonds, which may impact the wealth of investors and financial institutions.

Credit availability: If global lenders and creditors are exposed to the collapsed banks, their
ability to extend credit to Indonesian entities could be impaired. This can reduce the
availability of credit for businesses and households in Indonesia, potentially impacting
investment and consumption.

Trade Channel:
Reduced trade financing: The collapse of major banks can disrupt trade financing
mechanisms, such as letters of credit and trade finance facilities. This can make it more
difficult for Indonesian exporters and importers to conduct trade transactions, leading to a
decline in trade volumes.

Weakened investor sentiment: A banking crisis can negatively impact investor sentiment and
confidence in the Indonesian economy. This could reduce foreign direct investment (FDI) and
discourage international investors from engaging in trade and investment activities in
Indonesia.
various measures that Indonesian authorities can take to mitigate these
potential impacts and enhance economic stability:

 Strengthening financial sector oversight and regulation to prevent bank failures and
enhance resilience.

 Implementing policies to attract and retain foreign investors, such as ensuring a stable
and predictable investment climate, and promoting transparency and investor
protection.

 Maintaining adequate foreign exchange reserves to manage potential capital outflows

and currency volatility.

 Diversifying trade partners and expanding trade relationships to mitigate dependence

on specific regions or countries.