Digital Zeitgeist – The CEO of BlackRock Has Warned That The Failure Of SVB Might Signal The Beginning Of A “Slow-Rolling Crisis”
Investors May See More “Shutdowns and Seizures” in The United States, According to Larry Fink, Who Also Expects Higher Inflation And Interest Rates.
The failure of Silicon Valley Bank may only be the beginning of a “slow rolling crisis” in the United States financial system, with “more seizures and shutdowns coming,” according to the chief executive of the world’s largest asset manager, who issued this warning after the failure of Silicon Valley Bank.
In a letter to investors and corporate executives, Larry Fink, CEO of BlackRock, forecasted that inflation and interest rates would continue to climb, two factors that led to the failure of SVB.
Nervousness has spread across the world’s financial markets as a result of the collapses in the previous week of not just the California-based bank but also of other American lenders Signature and Silvergate. These worries were given a further boost on Wednesday, when shares of Credit Suisse fell to an all-time low. This happened after the most significant investor in the struggling Swiss institution said he would not provide it with more money.
Fink described the situation as the “price of easy money” that was having to be paid after the Federal Reserve’s decision to start aggressively raising interest rates. “Something else had to give as the fastest pace of rate hikes since the 1980s exposed cracks in the financial system,” he said.
Fink added it was not yet clear where new victims of the “asset-liability mismatches” that claimed SVB would be found.
“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.”
But, some prominent players in the financial world have cautioned that the volatility that is now building in the European banking industry might represent an even greater risk to the stability of the global market.
The prominent economist Nouriel Roubini stated in an interview with Bloomberg news that the failure of Credit Suisse could lead to a “Lehman moment.” He was referring to the failure of the United States investment bank Lehman Brothers in August 2007, which marked the beginning of the global financial crisis.
Leading figures on Wall Street have warned that the crises that have been affecting regional or mid-size US banks may not be at an end, which will have further regulatory and market repercussions. This is despite the fact that the government has intervened to protect depositors at SVB and New York-based Signature.
Ray Dalio, the recently retired founder of Bridgewater, said on his LinkedIn page that SVB’s failure was part of the “very classic bubble-bursting part of the short-term debt cycle”, adding: “This bank failure is a ‘canary in the coalmine’ early-sign dynamic that will have knock-on effects in the venture world and well beyond it.”
SVB was placed under government administration on Friday, with its depositors guaranteed beyond $250,000 limits to try to reassure markets.
It has been reported that prosecutors and regulators have begun separate investigations into the technology-focused lender. The investigations are reportedly looking into the lender’s lack of a risk management officer in the time leading up to the company’s collapse and the subsequent takeover by government regulators.
According to the Wall Street Journal, which was the first publication to report on the yet-to-be-announced investigations, the United States Department of Justice and the Securities and Exchange Commission will investigate the events that led up to the collapse of the bank, stock sales made by SVB officials in recent weeks, and the company’s absence of a chief risk officer.
Since April 2022, when executive Laura Izurieta resigned from her post, SVB has not had someone in that position. In January of this year, SVB stated that it had recruited Kim Olson, who had previously worked for Sumitomo Mitsui Banking Corp.
On Monday, the government of the United Kingdom assisted in the negotiation of an agreement for HSBC to purchase the activities of SVB in the United Kingdom. This would prevent significant financial losses for thousands of British technology companies and investors.
On Wednesday, bosses at the London-headquartered lender called on employees at the rescued British arm of SVB to assure clients “their deposits are safe and loans are supported”.
“We’ve put close to £2bn of liquidity into SVB UK and we’re ready to deploy more cash and more liquidity, as needed,” said the memo, signed by HSBC’s group CEO Noel Quinn.
online sources: bloomberg.com, theguardian.com, wsj.com