Blackrock CEO Warns More Bank Seizures and Closures May Result from Regulatory Changes – Finance Bitcoin News

The CEO of Blackrock, the world’s largest asset manager, has warned of further bank seizures and closures that could result from regulatory changes in response to the failures of several major US banks. “It seems inevitable that some banks will now have to pull back on lending to strengthen their balance sheets and we are likely to see tighter capital standards for banks,” he added.

Blackrock’s head of several bank seizures, closures

Larry Fink, chairman and CEO of Blackrock, the world’s largest asset manager, shared his views on the US economy and recent bank failures in his annual chairman’s letter to investors, published this week.

“This past week we saw the largest bank failure in more than 15 years when federal regulators seized Silicon Valley Bank. This is a classic asset-liability mismatch. Two smaller banks also failed in the past week,” Fink described. Silicon Valley Bank was shut down by regulators on March 10, while Signature Bank was seized by the New York State Department of Financial Services last Friday. Silvergate Bank also recently announced voluntary liquidation, and 11 banks bailed out First Republic Bank this week. In Switzerland, Credit Suisse also fell into trouble and received a rescue operation from the Swiss central bank.

– It is too early to know how extensive the damage is. The regulatory reaction has so far been swift, and decisive actions have helped to avert the risk of infection. But the markets are still on edge. Will asset-liability mismatches be the second domino to fall?” The Blackrock boss wrote, adding:

We do not yet know whether the effects of easy money and regulatory changes will cascade through the US regional banking sector (similar to the S&L crisis [savings and loan crisis]) with more seizures and closures coming.

“It seems inevitable that some banks will now have to pull back on lending to strengthen their balance sheets, and we are likely to see tighter capital standards for banks,” he continued.

– In the longer term, the current banking crisis will place greater emphasis on the role of the capital markets. As banks become potentially more constrained in their lending, or as their customers wake up to these asset-liability mismatches, I expect they will likely turn to the capital markets for funding in greater numbers,” Fink explained.

The Blackrock boss further warned: “In addition to duration mismatches, we can now also see liquidity mismatches. Years of lower interest rates had the effect of causing some assets to increase their commitments to illiquid investments – trading lower liquidity for higher returns. There is a risk now of liquidity mismatches for these assets, especially those with leveraged portfolios.” Fink in detail:

As inflation remains high, the Federal Reserve will remain focused on fighting inflation and continue to raise interest rates. While the financial system is clearly stronger than it was in 2008, the monetary and fiscal tools available to policymakers and regulators to address the current crisis are limited, especially with a divided US government.

“With higher interest rates, governments cannot sustain recent levels of fiscal spending and the deficits of previous decades,” he further warned. “The US government spent a record $213 billion on debt interest payments in the fourth quarter of 2022, an increase of $63 billion from the previous year.”

What do you think of Blackrock CEO Larry Fink’s financial outlook? Let us know in the comments section below.

Kevin Helms

A student of Austrian economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the intersection of finance and cryptography.