Larry Fink, the CEO of the top investment management company BlackRock, commented on Wednesday that the recent debacle of the state-chartered commercial bank Silicon Valley Bank (SVB) has posed the threat of a “slow-rolling crisis” over the US banking sector, “with more seizures and shutdowns coming.”
In a letter addressing the investors and chief executives, Fink warned that the inflation would persist and the interest rates would continue to rise, increasing the possibility of more financial institutions shutting down.
Interestingly, the CEO alerted that the banking turmoil could even worsen beyond the fall of SVB, commenting that the current tumult in the financial sector is the “price of easy money” including more than a decade of lower interest rates.
Adding to his comments, he stressed that the damage is vastly spread, quoting:
Are the dominoes starting to fall? It’s too early to know how widespread the damage is.
Significantly, Fink predicted that the banks would pull back to lending, prompting more companies to turn to the capital market. He added that such a scenario would create better opportunities for investors and asset managers.
However, he reminded everyone that the financial industry would witness “liquidity mismatches” after the regional banking crisis, as some of the asset owners have been driven to raise their exposure to higher-yielding investments, that are not easy to trade.
In addition, Fink identified some other risks the financial system should worry about, including geopolitical tensions and global fragmentation. He argued that these factors would severely affect the industry with persistent inflation and lower returns for investors.