Monday, October 2, 2023

BlackRock CEO Larry Fink Warns of Potential Banking System Failures After Silicon Valley Bank Collapse

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The Silicon Valley Bank failure that happened this month shows the signs of a “slow-rolling crisis” in the US economy and  “more seizures and shutdowns are coming” along this major collapse says Larry Fink.

Larry Fink, CEO of BlackRock, has warned that the consequences from SVB might cause a “slow rolling crisis.” Hollie Adams—Bloomberg/Getty Images

The CEO of Black Rock, Larry Fink, the chief executive of the world’s largest asset manager predicts that as world history says a major collapse of a bank system can lead to a range of other banks’ collapse as well, as in the 2008 Washington Mutual Bank incident.

With this Fink says that inflation would persist and rates within the US financial system will continue to rise as well. Not only Silicon Valley Bank but following it Signature and Silvergate Banks also collapsed and this happened to cause jitters throughout the global market.

Fink released his annual letter to the shareholders on Wednesday and with that, he states even if the fast responses of the regulators save the market from the contagion risks, the market will remain to run on the edge.“It’s too early to know how widespread the damage is,” Fink wrote. “The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge.”

According to Fink, this Silicon Valley Bank collapse reminisces some “spectacular financial flameouts” including the “slow rolling” Saving and Loan Crisis in the 1980s and the early 1990s during this incident thousands of financial institutions failed, and also the 1994 bankruptcy of Orange Country, California.

Fink uses the phrase “price of easy money” to describe the situation as the Federal Reserve’s decision after this huge collapse was also to raise the interest rates aggressively. Furthermore, he added “something else had to give as the fastest pace of rate hikes since the 1980s exposed cracks in the financial system.

According to Fink, even the consequences of easy money and regulatory changes cannot be predicted yet more seizures and shutdowns will continue to happen.

“We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming,” says Fink.

Apart from Fink, other leading financial figures also warned that this unstable extraction in the European Banking sector could create an even bigger threat to the stability of the global market.

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