Blackrock CEO Warns Regulatory Changes Could Result in More Bank Seizures and Closures

The CEO of Blackrock, the world’s largest asset manager, has warned of additional bank seizures and closures that could result from regulatory changes in response to the failures of several major banks in the US. “It seems inevitable that some banks will now need withdraw lending again to shore up their balance sheets, and we are likely to see tougher capital standards for banks,” he added.

Blackrock boss on more seizures and bank closures

Larry Fink, chairman and chief executive officer of Blackrock, the world’s largest asset manager, shared his views on the US economy and recent bank failures in his annual letter to investors from the president, released this week.

“Last week we saw the biggest bank failure in more than 15 years when federal regulators seized Silicon Valley Bank. This is a classic mismatch of assets and liabilities. Two smaller banks also failed last 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 a voluntary liquidation and 11 banks bailed out First Republic Bank this week. In Switzerland, Credit Suisse also ran into trouble and was bailed out by the Swiss central bank.

“It is too soon to know how extensive the damage is. The regulatory response so far has been swift and decisive action has helped avert contagion risks. But the markets are still on the edge. Will asset-liability mismatches be the second domino to fall? the Blackrock executive wrote, adding:

We don’t yet know if the fallout from easy money and regulatory changes will reverberate throughout the US regional banking sector (similar to the S&L crisis) with more seizures and closings to come.

“It seems inevitable that some banks will now need to withdraw loans to shore up their balance sheets, and we are likely to see tougher capital standards for banks,” he continued.

“In the longer term, the current banking crisis will give greater importance to the role of capital markets. As banks potentially become more restricted in their lending, or as their clients become aware of these asset-liability mismatches, I anticipate that it is likely that they will turn to the capital markets in greater numbers for financing,” he explained. fink.

The Blackrock executive further warned: “In addition to duration mismatches, we may now also see liquidity mismatches. Years of lower rates had the effect of prompting some asset owners to increase their commitments to illiquid investments, trading less liquidity for higher returns. There is now a risk of a liquidity mismatch for these asset owners, especially those with leveraged portfolios.” detailed fink:

As long as inflation remains elevated, the Federal Reserve will remain focused on fighting inflation and will continue to raise 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 divided government in the United States.

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

What do you think about Blackrock CEO Larry Fink’s economic vision? Let us know in the comments section.

kevin helms

Kevin, an Austrian economics student, 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 economics and cryptography.