Billionaire investor Bill Ackman wrote a lengthy analysis of the Silicon Valley Bank failure on Saturday, arguing that the U.S. government needs to protect all of the bank’s depositors.
The financial expert says that the government needs to take action by Monday to avoid an economic meltdown.
The collapse of Silicon Valley Bank on Friday marks the worst U.S. financial institution failure since the Great Recession. SVB, which was the 16th largest bank in the U.S., had $209 billion in total assets at the end of 2022.
The failure was precipitated by its shares falling 60% on Friday morning, after nosediving 60% the previous day. SVB had sold off $1.75 billion in shares to compensate for declining customer deposits.
The Pershing Square Capital Management CEO took to Twitter to give his take of 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 illiquid claim on a failed bank,” he began.
He then predicted that people will rush to withdraw huge sums of uninsured deposits from all non-systemically important banks (SIB).
“These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST,” Ackman postulated. “There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits.”
Ackman said that “the destruction of these important institutions” will begin once depositors start draining money from regional and community banks. He asserted that the U.S. government could have guaranteed SVB’s deposits in exchange for penny warrants to avoid its collapse and create potential for profits.
“Instead, I think it is now unlikely any buyer will emerge to acquire the failed bank,” he continued. “The gov’t’s approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk.”
“The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits,” Ackman argued.
Amid anxiety and uncertainty about the SVB’s failure, the White House asserted that post-2008 reforms will protect the U.S. economy.
“Our banking system is in a fundamentally different place than it was, you know, a decade ago,” White House Council of Economic Advisers chair Cecilia Rouse emphasized. “The reforms that were put in place back then really provide the kind of resilience that we’d like to see.”
