Billionaire Bill Ackman has urged the US government to “guarantee” all Silicon Valley Bank (SVB) deposits in the next “48 hours” or risk the “destruction” of many financial institutions.
In a Tweet On March 11, Bill Ackman, CEO of hedge fund management firm Pershing Square Capital Management, said there will be a “giant sucking sound” from the “withdrawal of substantially all uninsured deposits” from all banks, not just “systemically important banks (SIBs)”, in case the government does not “guarantee all” SVB deposits before “opening Monday”.
Ackman suggested that this would be the result of “the world” realizing what an uninsured deposit is: “an illiquid unsecured claim on a failing bank.”
He warned that these withdrawals would “drain liquidity” from community, regional and other banks and “begin the destruction” of these crucial institutions if the US government does not protect “all depositors.”
Ackman said the only way to avoid that was in the “unlikely” event that large financial institutions such as JPMorgan Chase, Citibank or Bank of America acquired SVB before Monday.
He argued that this could have been “avoided” if the US government had “intervened on Friday” to guarantee SVB’s deposits, adding that the long-established bank’s “franchise value” could have been safeguarded and “transferred” to a new owner in exchange for a “capital injection”.
Ackman suggested that SVB’s top management “made a basic mistake” and should be fired. He pointed:
“They invested short-term deposits in long-term assets with fixed interest rates. Then short-term rates went up and there was a run on the banks. Top managers screwed up and should lose their jobs.”
After conducting a “retrospective review” of SVB’s balance sheet, Ackman believes that even “in a liquidation”, depositors “should eventually” recover approximately “98% of their deposits”.
However, he argued that “eventually” is “too long” when you have “payroll due next week.”
Ackman tweeted soon after, reiterating that the FDIC should guarantee all SVB bank deposits by Sunday night, along with a proposed plan.
What should the FDIC do? @FDICgov to guarantee all bank deposits by Sunday night before Asia open and call a time out. Run a process to recapitalize @SVB_Financial while managing liquidation of UST and MBS portfolios to be reinvested in short term UST. Determine the capital hole… https://t.co/g96k1b7soy
— Bill Ackman (@BillAckman) March 11, 2023
This comes after Bob Elliot, CEO of investment firm Unlimited, said that decisions by the Federal Reserve and FDIC on the future of SVB may affect regional banks across the United States, putting trillions of dollars at risk. of a bank run.
Elliot stated that nearly a third of US deposits are in small banks, adding that approximately 50% of those deposits are uninsured.
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