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Larry Fink, the most powerful man in the Stock Market, does not rule out a liquidity crisis after the bankruptcy of Silicon Valley Bank


The president of BlackRock blames the banking crisis in the US on the monetary policies of the Federal Reserve and warns that it is still too early to measure its consequences

Larry Fink is the most powerful man on the stock market.

He is the founder and chairman of BlackRock, the world's largest fund manager with assets close to $8.6 trillion.

Every time he opens his mouth he is listened to carefully.

He has just published his annual letter addressed to the firm's investors and devotes a chapter to the banking crisis unleashed in the US after the bankruptcy of Silicon Valley Bank.

And his message is not very optimistic.

“We still don't know the consequences that cheap money and regulatory changes will have on US regional banks and we are likely to see more seizures and closures,” he stresses.

Fink recalls that since the 2008 financial crisis, markets have been conditioned by "extraordinarily aggressive" fiscal and monetary policies.

And he recalls that the consequence of these measures is a rise in inflation to levels not seen since the eighties.

“To fight against this rise in prices, the Federal Reserve has raised interest rates by almost 500 basis points in the last year.

This is one of the prices we have to pay for years of cheap money and it is the first domino to fall,” he says.

In addition, the president of BlackRock recalls that, as a consequence of the change in the policy of the US central bank, the bond market fell 15% in 2022, but, as they said in the old westerns, he believes that this fall is "slow too slow."

After the banking crisis that has unfolded in the last week, Fink believes that it is inevitable that some banks "will have to step on the brakes on their lending to prop up their balance sheets and it is also likely that we will see stricter capital regulations for financial institutions" .

If the analysis is projected in the longer term, the founder of BlackRock believes that this crisis will have a special impact on the role of financial markets.

"As banks become more prudent with their lending, or as their clients become aware of imbalances in their balance sheets, I anticipate that many companies will look more to the capital markets for financing."

And his analysis goes further:

In his letter, Fink points out that there could still be a third tile to fall in this game of dominoes.

“I think there may be liquidity mismatches.

Years of interest rate cuts led asset managers to increase their exposure to illiquid investments, sacrificing some liquidity in exchange for higher returns.

Now there is a liquidity risk for the owners of these assets, especially in the case of those who are more leveraged.

Because inflation is still high, Fink recalls that the Federal Reserve will continue to focus on fighting prices and to do so, will continue to raise interest rates.

"While the financial system is clearly stronger than in 2008, the fiscal and monetary tools available to governments and regulators to deal with the current crisis are limited, especially with a divided US government," he concludes.

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Source: elparis

All business articles on 2023-03-15

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