Larry Fink, the largest shareholder of Ibex, points to a liquidity crisis in the market

Multi-million dollar losses in bagsbank (Credit Suisse) on the brink of collapse and a lot of uncertainty. After Tuesday’s truce, markets responded again this Wednesday with fears over the possibility that Silvergate’s bankruptcy, Silicon Valley Bank and Signature are just the tip of the iceberg of a larger problem buried among the balance sheets of some financial institutions, which have fallen on markets around the world since early morning.

Is the world on the brink of a new crisis? The Economist Nouriel Roubini points in that direction. He argued that Credit Suisse was “too big to fail” and possibly “too big to be saved”. His fall from grace could have serious consequences for the entire banking chain. Spokesperson for the Office of Asset Management JPMorgan, Bob Michele, is also pessimistic about it. He considers the recession “inevitable”.

However, there were words Larry Fink, the most powerful man on Wall Street and the largest shareholder of Ibex 35, which sent the market into a frenzy. President and founder black rock, the world’s largest fund manager, suggests in its annual letter to investors that the world is probably on the verge of a liquidity crisis: “It seems inevitable that some banks will now have to withdraw loans to shore up their balance sheets and we will probably see tighter capital standards for them,” he says.

He also points out that the extremely loose policy of central banks (cheap money) in recent years has led many entities to direct money into long-term assets, running out of cash now that rising interest rates are restricting lending, forcing companies to request the withdrawal of their deposits: «Previous tightening cycles often led to spectacular financial collapsessuch as the savings and loan (called S&L) crisis that developed during the 1980s and early 1990s,” he recalls.

S&Ls took over 747 of the 3,234 entities the United States had to provide these services. It was “slow crisis, it just dragged on. It took a decade.” And that’s what you think might happen again.

No wiggle room

That’s the price of years easy money, as he calls it. But he is not the only one. Another consequence of the open bar is high inflation, which central banks are trying to solve by raising interest rates. And there is the dilemma: continue down that path, exposing yourself to new bank failures, or step back on the accelerator and cause stagflation, a scenario of zero growth and rising prices that usually leads to business closures and unemployment.

The problem, as Fink points out, is that at current levels of inflation, The Federal Reserve will be forced to continue raising rates: “While the financial system is clearly stronger than it was in 2008, the monetary and fiscal tools in the hands of policymakers and regulators to address the current crisis are limited.” Neither governments can maintain the current rate of public spending nor can central banks afford to lower the price of money.