After Silicon Valley Bank‘s failure on March 15, BlackRock CEO Laurence Fink issued a warning that the regional banking industry in the United States is still in danger. In fact, he continued to express his opinion and suggested that future bank seizures may be increased.
Fink noted that it is likely that certain banks will reduce lending in the future in order to improve their balance sheets. Still, he did not make it clear if the financial crisis, brought on by increasing interest rates, will claim additional victims.
As a result, bank clients will increasingly resort to capital markets for their financing in response to the “asset-liability mismatches” that Silicon Valley Bank and other institutions experienced.
The CEO did admit, though, that prompt regulatory intervention prevented a worse disaster. He added,
“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.”
During the regional banking crisis, Fink warned in a yearly letter that the financial sector would have “liquidity mismatches.” Particularly due to low-interest rates, some asset owners have increased their exposure to less liquid or difficult-to-sell higher-earning investments.
Fink added the following in a letter that Reuters said to have seen:
“Bond markets were down 15% last year, but it still seemed, as they say in those old Western movies, ‘quiet, too quiet.’ Something else had to give as the fastest pace of rate hikes since the 1980s exposed cracks in the financial system.”
Moreover, Fink predicted that a more polarized globe would rupture supply linkages and cause inflation to be chronic. He predicted that it would “most likely stay closer to 3.5% or 4% in the upcoming years.”