Finance Minister Choo Kyung-ho said the government will closely monitor the collapse of Silicon Valley Bank, which has been sending shock waves across the world for the past few days, amid efforts to calm the local financial market.

SVB, a major US bank largely focused on startup loans, went bankrupt on Friday. Signature Bank, one of the main banks in the cryptocurrency industry, also closed following concerns of a spreading banking crisis.

Choo said that the SVB crisis stemmed from financial instability in vulnerable sectors due to continued intensive monetary tightening policies practiced to combat inflation. The US Federal Reserve has been rapidly raising interest rates to fight inflation.

“With the global economy yet to have fully tamed inflation, market volatility may escalate in the future, affected by concerns about the financial system,” Choo said in an emergency macroeconomic meeting held Tuesday.

Top financial regulators, including Choo and Bank of Korea Gov. Rhee Chang-yong, also gathered on Sunday to discuss the SVB collapse and its possible effects on the Korean economy.

“The preference for safe assets in the government bond market has strengthened and state bond yields have fallen sharply as the outlook on tight fiscal policy globally has weakened,” Choo said.

Despite the crisis, Choo declared that the local financial market has maintained stability overall.

"Domestic financial institutions have a different structure of assets and deficits than that of SVB. The liquidity coverage ratio of all (Korean) banks surpasses 100 percent, having sufficient strength to withstand a sudden shock,” Choo said.

“The direct effects (of the crisis) will be limited to this level, as the exposure of major financial intuitions such as local banks and investment institutions, including the big four pension funds, Korea Investment Corporation and Korea Post, is not big, relatively speaking,” he said.

Choo promised that the Korean government will fully respond to the crisis.

“The government will do its utmost to maintain the stability of the financial market in response to the immediate market uncertainty,” Choo said.

Despite Choo’s remarks to calm the market, the local financial market showed sluggish performance Tuesday, reflecting heightened volatility from the SVB crisis and uncertainty related to the US consumer price index data from February, set to be released Tuesday evening.

The benchmark Kospi closed at 2,348.97, down 61.63 points from from the day before, unable to make a recovery since starting out the day at 2390.36. It was the first time since Jan. 6 for the Kospi to drop below 2,350.

Kosdaq kicked off at 788.44 and further dropped to 758.05 by closing, marking a 30.84 fall from the previous trading session.

The Korean won against the dollar opened at 1,298.1 won and closed at 1,311.1 won, 9.3 won higher than Monday's figure.