Billionaire investor Bill Ackman wrote a lengthy analysis of Silicon Valley Bank Failure on Saturday, arguing that the US government needs to protect all of the bank’s depositors.
Financial experts say the government needs to act by Monday to avoid an economic slowdown.
Friday’s collapse of Silicon Valley Bank is the worst failure of a US financial institution since the Great Recession. SVB, which was the 16th largest bank in the US, had total assets of $209 billion at the end of 2022.
failure befell it Shares fall by 60% Friday morning, after doing a 60% nosedive the previous day. SVB sold shares worth $1.75 billion to make up for dwindling customer deposits.
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The CEO of Pershing Square Capital Management took to Twitter to update on the situation.
“By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is – an unsecured illegal claim on a failed bank,” he began.
He then predicted that people would rush to withdraw large amounts of uninsured deposits from all non-systemically important banks (SIBs).
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“These funds will be transferred to SIBs, US Treasury (UST) money market funds, and short-term USTs,” Ackman posted. “There is already pressure to move cash into short term UST and UST money market accounts due to the significantly higher returns available on risk-free UST versus bank deposits.”
Ackman said the “destruction of these vital institutions” would begin when depositors began pulling money out of regional and community banks. He insisted that the US government could have guaranteed SVB’s deposits in exchange for penny warrants to avoid its collapse and create profit potential.
“Instead, I think it is now unlikely that a buyer will emerge to acquire the failed bank,” he continued. “The government’s approach has guaranteed that more risk will be concentrated in SIBs at the expense of other banks, which itself creates more systemic risk.”
“The failure of the FDIC and the OCC to do their job should not lead to the destruction of 1,000 of our nation’s highest potential and highest growth businesses (and the loss of 10 of the 1,000 jobs for our most talented young generation) while our communities and permanently reducing regional banks’ access to low-cost deposits,” Ackman argued.
Amid concerns and uncertainty about the failure of the SVB, the White House insisted that post-2008 reforms would protect the US economy.
“Our banking system is in a fundamentally different place than it was a decade ago,” insisted Cecilia Rouse, chair of the White House Council of Economic Advisers. “The reforms that were rolled back really provide the kind of flexibility we’d like to see.”