February 2025 Global Financial Market Review: MLF Operations, Falling Returns, Crypto Crash, and Bundesbank Losses

February 2025 Global Financial Market Review: MLF Operations, Falling Returns, Crypto Crash, and Bundesbank LossesFebruary 2025 witnessed significant volatility in global financial markets. A confluence of events, ranging from central bank monetary policy adjustments and a cryptocurrency market crash to losses reported by established financial institutions, shaped the month's financial landscape

February 2025 Global Financial Market Review: MLF Operations, Falling Returns, Crypto Crash, and Bundesbank Losses

February 2025 witnessed significant volatility in global financial markets. A confluence of events, ranging from central bank monetary policy adjustments and a cryptocurrency market crash to losses reported by established financial institutions, shaped the month's financial landscape. This report analyzes several key events.

I. PBOC Conducts 300 billion MLF Operation, Maintaining Ample Liquidity

On February 25th, the People's Bank of China (PBOC) announced a 300 billion Medium-term Lending Facility (MLF) operation with a one-year maturity and a bid rate of 2.00%, aiming to maintain ample liquidity in the banking system. Following the operation, the outstanding balance of MLF reached 409.4 billion. This represents a 200 billion reduction compared to January. However, considering the PBOC's 1.7 trillion reverse repurchase agreement operations in January, which preemptively injected substantial liquidity, the February MLF reduction did not significantly impact market liquidity.

This MLF operation reflects the PBOC's cautious approach to maintaining market liquidity. While reduced in volume, it still ensured ample liquidity supply. This is closely related to the uncertainties surrounding global economic recovery and the domestic goal of steady economic growth. The PBOC, through the flexible use of various monetary policy tools, aims to maintain the stability and healthy operation of the financial system. In the future, with changes in the methods of base money injection, the MLF stock is expected to gradually decline, and its role as a medium-term policy interest rate will gradually fade. The PBOC will focus more on controlling short-term interest rates and streamlining the interest rate transmission mechanism from short to long-term monetary policy tools to achieve more precise and effective monetary policy control. This signifies an adjustment and optimization of China's monetary policy, further enhancing its precision and effectiveness to better serve the real economy. This adjustment is not a signal of tightening monetary policy, but rather an optimization of the strategy for using monetary policy tools, aiming to improve efficiency and enhance the precision of control.

II. Some Bank Wealth Management Product Returns Fall Below 2%, Investors Urged to Respond Rationally

Recently, the benchmark return lower limits of some bank wealth management products have fallen below 2%, attracting market attention. This phenomenon includes both downward adjustments to the benchmark returns of existing products and the direct setting of benchmark returns below 2% for newly issued products. Du Yang, a researcher at the Bank of China Research Institute, stated that recent fluctuations in the financial market are the main reason why banks or wealth management subsidiaries are adjusting product benchmark returns, aiming to more realistically reflect product return levels.

The decline in wealth management product returns is closely related to ample market liquidity, falling interest rates, and the decline in risk-free returns, including government bonds. In a low-interest-rate environment, the investment returns of bank wealth management products are naturally affected. Changing market conditions have prompted bank wealth management subsidiaries to actively adjust their investment strategies, striving to maintain a certain level of return amidst market fluctuations, but actual returns remain uncertain.

For investors, the decline in wealth management product returns may lead to some capital outflow from bank wealth management, seeking higher-return asset allocation directions, with the equity market potentially becoming a major recipient of these funds. Investors need to rationally view changes in wealth management product returns and adjust their asset allocation based on their own risk tolerance and investment goals, avoiding blindly chasing high returns or panic selling. In the current complex market environment, diversified investment and prudent investment remain important investment philosophies.

III. Cryptocurrency Market Continues to Decline, Bybit Hack Exacerbates Market Panic

The cryptocurrency market continued its decline in February, with Bitcoin falling below $90,000 and Ethereum falling by over 11%. Several security incidents over the weekend, particularly the major hack of the Bybit cryptocurrency exchange, further exacerbated the market downturn. Reports indicate that hackers exploited platform vulnerabilities to steal over $1.5 billion worth of cryptocurrencies, triggering panic selling.

The Bybit hack exposed security vulnerabilities in cryptocurrency exchanges and heightened concerns about centralized risks. This serves as another reminder to investors that the cryptocurrency market is inherently risky, especially regarding the security of centralized exchanges. The incident may lead to capital flowing towards safer assets, such as gold or government bonds. Market participants need to closely monitor the progress of related events and carefully assess investment risks. When investing in cryptocurrencies, choosing reputable and secure platforms is crucial, along with implementing risk control and asset protection measures.

IV. Bundesbank Reports First Loss Since 1979, Sparking Market Concerns

On February 25th, the Deutsche Bundesbank (German central bank) announced a deficit of approximately 19.2 billion in 2024, its first loss since 1979 and its largest ever. This event had a certain impact on market confidence, raising concerns about the European economic outlook.

The Bundesbank's losses are mainly related to the revaluation of its balance sheet in a low-interest-rate environment. Low interest rates led to a decline in the value of its bond holdings, resulting in losses. While these losses will not affect the Bundesbank's ability to implement monetary policy, they could impact the performance of European financial stocks and indirectly affect market sentiment. However, its spillover effect on global markets is limited, as the Bundesbank's influence is primarily concentrated in Europe.

V. AI Technology Poised to Reshape Bank Lending Systems with "Unmanned" Loan Approvals

Several banks have launched in-depth research and testing of the DeepSeek large language model, with some even completing local deployments. The chairman of a city commercial bank stated that the DeepSeek large language model has reduced the cost of AI technology application, allowing smaller banks to more widely utilize AI technology. In the future, loan processing may achieve unmanned approval.

The DeepSeek large language model is bringing significant changes to the entire financial industry, including banks, including improved efficiency, reduced costs, enhanced risk management, and accelerated ecosystem building. The application of AI technology will narrow the technological gap between small and medium-sized banks and large banks, further promoting the development of the financial technology sector. Relevant companies are expected to benefit from cost reduction and efficiency improvements, enhanced risk control, and service upgrades, thereby improving valuation levels.

However, the application of AI technology in the financial field also faces challenges, such as data security, algorithmic bias, and regulatory compliance. Appropriate regulatory frameworks and technical standards need to be established to ensure the safe, reliable, and compliant application of AI technology to maximize its advantages while effectively mitigating risks.

Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Any actions taken based on this information are at your own risk.