The CEO of Blackrock, the world’s biggest property supervisor, has actually cautioned about extra bank seizures and shutdowns that could arise from regulatory changes in action to the failures of numerous significant banks in the U.S. “It does seem inevitable that some banks will now need to pull back on lending to shore up their balance sheets, and we’re likely to see stricter capital standards for banks,” he included.
Blackrock’s Chief on More Bank Seizures, Shutdowns
Larry Fink, the chairman and CEO of Blackrock, the world’s biggest property supervisor, shared his view on the U.S. economy and current bank failures in his yearly chairman’s letter to financiers, released today.
“This past week we saw the biggest bank failure in more than 15 years as federal regulators seized Silicon Valley Bank. This is a classic asset-liability mismatch. Two smaller banks failed in the past week as well,” Fink explained. Silicon Valley Bank was closed down by regulators on March 10 while Signature Bank was taken by the New York State Department of Financial Services last Friday. Silvergate Bank also just recently revealed voluntary liquidation, and 11 banks bailed out First Republic Bank today. In Switzerland, Credit Suisse also fell under difficulty and got a bailout from the Swiss reserve bank.
“It’s too early to know how widespread the damage is. The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge. Will asset-liability mismatches be the second domino to fall?” the Blackrock executive composed, including:
We don’t understand yet whether the effects of simple cash and regulatory changes will waterfall throughout the U.S. local banking sector (comparable to the S&L crisis [savings and loan crisis]) with more seizures and shutdowns coming.
“It does seem inevitable that some banks will now need to pull back on lending to shore up their balance sheets, and we’re likely to see stricter capital standards for banks,” he continued.
“Over the longer term, today’s banking crisis will place greater importance on the role of capital markets. As banks potentially become more constrained in their lending, or as their clients awaken to these asset-liability mismatches, I anticipate they will likely turn in greater numbers to the capital markets for financing,” Fink described.
The Blackrock executive even more cautioned: “In addition to duration mismatches, we may now also see liquidity mismatches. Years of lower rates had the effect of driving some asset owners to increase their commitments to illiquid investments — trading lower liquidity for higher returns. There’s a risk now of a liquidity mismatch for these asset owners, especially those with leveraged portfolios.” Fink detailed:
As inflation stays raised, the Federal Reserve will remain concentrated on battling inflation and continue to raise rates. While the monetary system is plainly more powerful than it remained in 2008, the financial and financial tools readily available to policymakers and regulators to deal with the existing crisis are restricted, particularly with a divided federal government in the United States.
“With higher interest rates, governments can’t sustain recent levels of fiscal spending and the deficits of previous decades,” he furthermore warned. “The U.S. government spent a record $213 billion on interest payments on its debt in the fourth quarter of 2022, up $63 billion from a year earlier.”
What do you consider Blackrock CEO Larry Fink’s financial view? Let us understand in the comments area below.
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