US regulators have enlisted BlackRock Inc. to aid in the sale of $114 billion in securities obtained from failed banks, Signature Bank and Silicon Valley Bank. The Federal Deposit Insurance Corp. (FDIC) has stated that the firm will sell $27 billion in securities from Signature Bank and $87 billion from SVB Financial Group’s Silicon Valley Bank. As an asset manager, BlackRock will serve as an adviser to the government in times of financial distress.
Most of the holdings comprise agency mortgage-backed securities, collateralized mortgage obligations, and commercial mortgage-backed securities, which remained following the government’s sale of the remaining assets in March.
With BlackRock’s expertise in managing assets and its role in advising the government during economic uncertainty, this move is expected to facilitate the successful sale of these securities. The sale of these securities will allow the government to recoup a significant amount of money from the failed banks and contribute towards stabilising the financial system.
This collaboration between the US regulators and BlackRock demonstrates the importance of partnerships between the government and private sector entities to manage financial crises effectively.
The financial market advisory group of BlackRock was established in 2008
The FDIC has emphasized the importance of a “gradual and orderly” sale of the securities and has stated that it aims to minimize any potential negative impact on market functioning by considering daily liquidity and trading conditions. BlackRock, a global asset manager with $8.6 trillion of client assets and extensive experience managing complex debt, has been chosen to assist in selling these distressed bank securities.
The US government has a history of turning to BlackRock and its CEO, Larry Fink, in times of economic crisis, as they possess the scale and reach necessary to navigate complex financial scenarios. In the aftermath of the 2008 financial crisis, BlackRock was awarded contracts by the Federal Reserve and Treasury Department to manage $130 billion in bad debt from Bear Stearns and American International Group Inc. During the pandemic in 2020. The Fed once again sought the expertise of BlackRock to help oversee debt-buying programs aimed at stabilizing the economy.
BlackRock has not commented on the current situation. This collaboration between the government and private sector entities highlights the importance of working together during financial uncertainty to ensure stability and minimize negative economic impacts.
BlackRock’s Financial Markets Advisory Group was established in 2008 to provide financial advice to governments, central banks, and financial institutions. The group is led by co-heads Ben Leax and Brandon Hall, with a team of 200 employees across New York, London, Frankfurt, Budapest, and the Middle East.
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In addition to BlackRock, the FDIC has enlisted the services of other financial advisory and consulting firms such as Houlihan Lokey Inc., Rothschild Inc., and Piper Sandler & Co. for strategic support on bank failures.
The recent collapse of three US lenders, including Signature Bank and Silicon Valley Bank, has prompted the FDIC to appoint them as both institutions’ receivers. The sales of the securities held by these banks will likely aid in the recovery of funds for the government and contribute to stabilising the financial system.
First Citizens BancShares Inc. has agreed to acquire Silicon Valley Bank, while New York Community Bancorp’s Flagstar Bank has purchased Signature’s deposits and some of its loans from the FDIC. However, buyers hesitated to take on the securities and mortgage obligations purchased by the banks during a period of low borrowing costs, which have since decreased in value due to interest rate hikes by the Fed. As a result, the FDIC now holds billions of dollars worth of devalued securities.