Blackrock CEO Larry Fink has warned about the potential for additional bank seizures and shutdowns that could result from regulatory changes following the failures of several major banks in the US. “It does seem inevitable that some banks will now need to pull back on lending to shore up their balance sheets, and we’re likely to see stricter capital standards for banks,” he said in his annual chairman’s letter to investors. Fink’s comments come after regulators seized Silicon Valley Bank, one of the largest banking failures in the last 15 years. Two smaller banks failed in the previous week, and Silvergate Bank announced voluntary liquidation, while 11 banks had to bail out First Republic Bank. Meanwhile, Credit Suisse received a bailout from the Swiss central bank.
It is too early to understand the extent of the damage from these failures. The regulatory response has so far been swift and decisive, with actions to help stave off contagion risks. However, markets remain uncertain, and there is a risk now of a liquidity mismatch for asset owners, particularly those with leveraged portfolios, according to Fink.
“Over a longer-term, today’s banking crisis will place more importance on the role of capital markets,” Fink said, adding that banks would probably turn to the capital markets for financing, as they become more constrained in their lending, or as their clients awaken to asset-liability mismatches. Fink further warned that governments can’t sustain recent levels of fiscal spending and the deficits of past decades with higher interest rates. In the fourth quarter of 2022, the US government spent a record $213bn on interest payments on its debt, up $63bn from a year earlier. Fink also stated that the Federal Reserve would stay focused on combating inflation and continue raising rates as inflation remains elevated. Although the financial system is currently stronger than it was in 2008, the monetary and fiscal tools available to policymakers and regulators to address the present crisis are limited, particularly with a divided US government, he added.
Bank Failures in the US
US banks that have failed since 2008 include six public companies; of these, five were small banks, and one was a large bank with a market cap of over $1bn. There was also the failure of Lehman Brothers in 2008, the largest bankruptcy in US history, which blew out the global financial system, led to the bailout of banks, and caused an economic meltdown.
The 2022-2023 banking crisis has led to the seizure or closure of several US banks, including Silicon Valley Bank, which was seized by regulators on 10 March 2023, Signature Bank, which was seized by the New York State Department of Financial Services on 17 March 2023, and Silvergate Bank, which recently announced voluntary liquidation. Eleven banks had to rescue First Republic Bank from collapse. The Swiss central bank had to bailout Credit Suisse, which fell into trouble.
Experts, including Fink, believe that the current banking crisis raises questions about the soundness of the banking system and whether fundamental changes, such as changes to capital requirements, can protect it. Some experts see the present crisis as a wake-up call, highlighting the need for more extensive, fundamental reforms. These reforms should focus on preventing bank failures that can damage the US and global financial system and harm consumers and businesses.
The 2022-2023 banking crisis has driven a number of US banks to seizures, bails outs and liquidations, leading to losses and uncertainties for investors and clients. There is a growing concern among investors and analysts that more bank seizures and shutdowns may occur, especially as regulators tighten capital requirements for banks. In his annual letter to investors, Blackrock CEO Larry Fink has warned about the criticality of assessing the soundness of the current banking system and urged fundamental reforms aimed at preventing similar failures in the future.