BlackRock CEO acknowledges potential domino effect on US banks

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BlackRock Investment Manager Co-Founder Larry Fink released his annual letter to investors today. In the document, the CEO of the world’s largest asset manager refers to the case of Silicon Valley Bank (SVB) and warns of potential problems related to the financial institution’s crisis and the rise in US interest rates.

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“Since the 2008 financial crisis, markets have been constrained by extraordinarily aggressive fiscal and monetary policies. As a result of these policies, we’ve seen inflation at levels not seen since the 1980s,” the CEO notes. .

A rise in interest rates means the first piece of the manager’s co-founder domino to fall.

Fink calls the SVB case the biggest bank failure in 15 years. “It’s a classic case of a mismatch between assets and liabilities,” he says. However, the manager points out that it is too early to know how widespread the damage is. According to him, the response of the regulators was swift and decisive to avoid the risk of infection. But it begs the question: “Could the mismatch between assets and liabilities be the second domino to fall?”.

“And yet the third piece may fall,” he says. According to the CEO, years of low interest rates have had the effect of increasing the commitment of some property owners to non-cash investments seeking higher returns. The risk of this is that liquidity is now not relevant for these asset owners, especially leveraged portfolios. So Fink doesn’t rule out difficulties in maintaining cash flow.

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