• Blackrock’s CEO Larry Fink has warned about additional bank seizures and shutdowns that could result from regulatory changes in response to the failures of several major banks in the U.S.
• Fink noted that it is too early to know how widespread the damage is, but markets remain on edge due to asset-liability mismatches.
• He believes banks will pull back on lending and stricter capital standards are likely, while capital markets will play a larger role in providing financing over the long-term.
Blackrock CEO Warns of Bank Seizures and Shutdowns
The CEO of Blackrock, the world’s largest asset manager, has warned about additional bank seizures and shutdowns that could result from regulatory changes in response to recent major bank failures in the U.S. Larry Fink shared his view on this matter in his annual chairman’s letter to investors this week.
Asset-Liability Mismatch
Fink described that Silicon Valley Bank was shut down by regulators last week along with two smaller banks, while Silvergate Bank announced voluntary liquidation and 11 banks bailed out First Republic Bank this week. In Switzerland, Credit Suisse also fell into trouble and received a bailout from the Swiss central bank – all cases being examples of an asset-liability mismatch.
Regulatory Response
The Blackrock executive noted that so far the regulatory response has been swift and decisive actions have helped stave off contagion risks – however uncertainty remains as to what other consequences may arise from these events.
Impact on Banks & Capital Markets
Fink believes some banks will need to pull back on lending to shore up their balance sheets with stricter capital standards for them likely coming into effect. Over time he anticipates clients awakening to these asset-liability mismatches turning more often towards capital markets for financing instead of relying solely on traditional banking lenders such as those recently affected by these events.
Conclusion
Overall it appears certain further regulation will be required within both banking institutions as well as alternative sources of financing such as capital markets due to current market conditions caused by recent developments within the banking industry worldwide according to Larry Fink, Chairman and CEO of Blackrock Asset Management Company.