United Investment Limited - Blackrock's Fink Cautions on Regional Bank Risk and Rate Hikes

The U.S. regional banking sector faced ongoing risk, and inflation and interest rates were not going down anytime soon
CENTRAL, Hong Kong - May 10, 2023 - PRLog -- Fink wrote that "something else had to buckle as the financial system showed cracks from the fastest rate hike cycle since the 1980s."

SVB lost $1.8 billion on its bond portfolio due to higher interest rates and its stock sale to raise capital fizzled out. 2 The tech lender went bust when depositors took out over $40 billion in a day after learning the news.

The co-founder of Blackrock said he could not tell how serious the regional bank damage was, but he worried it could echo the Savings & Loans Crisis of the 1980s, which "continued" and led to many company failures.

The financial system was stronger than in 2008, but he said that central bank fiscal tools were restricted, and a "divided government" in the U.S. also lowered the prospects of fast and bipartisan agreements.

Liquidity mismatches were also mentioned as the third major risk that has not yet fallen. The years of extremely low interest rates also drove many lenders to "expand their commitments to illiquid investments—giving up liquidity for higher returns."

This increases risk for companies with more leverage and Fink anticipates many companies to reduce their lending to safeguard their balance sheets, while regulators are expected to enforce stricter capital standards.

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Catherine Chao
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