Billionaire Bill Ackman urged the United States government to “guarantee” all deposits held by Silicon Valley Bank (SVB) in the next “48 hours,” or risk the “destruction” of many financial institutions.
On March 11 tweetBill Ackman, CEO of hedge fund management firm Pershing Square, said that a “giant gasp” would be heard from the “withdrawal of all uninsured deposits,” from all banks, except for “systemically important banks (SIBs),” should the government fail to “guarantee all ” SVB deposit before “opening on Monday.”
Ackman suggested that this would be the result of “the world” knowing what uninsured deposits are – “illiquid unsecured claims on failed banks.”
He warned that the withdrawal would “drain liquidity,” from community, regional and other banks and “begin the destruction” of these important institutions, if the US government fails to protect “all depositors.”
Ackman said that the only other way to prevent this from happening is in the “unlikely” event that a major financial institution such as JP Morgan, Citibank or Bank of America, acquires SVB before Monday.
It was argued by Ackman that all this could be “avoided” if the US government “walked on Friday” to guarantee SVB’s deposits, adding that the “franchise value” of the long-standing bank could be preserved and “transferred” to the new owner in return for an “equity injection .”
Ackman suggested that SVB’s senior management “made a fundamental mistake” but should be fired. He noted:
“They invested their short-term deposits in long-term, fixed-rate assets. After that, short-term rates went up and the banks opened. Senior management screwed up and they had to lose their jobs.
After conducting a “back-of-the-envelope review” of SVB’s balance sheet, Ackman believes that even “in liquidation”, depositors “should eventually” get back approximately “98% of their deposits”.
However, he said that “in the end” it’s “too long” if you have “a paycheck to meet next week.”
Ackman tweeted shortly after, reiterating that the Federal Deposit Insurance Corporation (FDIC) must guarantee all SVB bank deposits by Sunday night, along with the proposed plan.
What should the FDIC do? @FDICgov to ensure all bank deposits by Sunday night before Asia open and call time out. Run the process for recapitalization @SVB_Financial while managing the liquidation of UST and MBS portfolios for reinvestment in short-term USTs. Determine the capital hole… https://t.co/g96k1b7soy
– Bill Ackman (@BillAckman) March 11, 2023
related: Silicon Valley Bank’s failure could hurt regional US banks
This is after Bob Elliot, CEO of the investment firm Unlimited, said that the Federal Reserve and the FDIC’s decisions about the future of SVB could affect regional banks throughout the United States, putting trillions of dollars at risk of opening banks.
Elliot stated that nearly one-third of the deposits in the United States are held in small banks, with 50% of those deposits being insured.