The US government “did the right thing” for America by bailing out Silicon Valley Bank’s depositors, according to billionaire investor Bill Ackman, who said failure to act would lead to the country becoming a 1930s-style bank.
At tweet Saturday night, the legendary investor shared his thoughts on the collapse of Silicon Valley Bank (SVB) and how the US government has responded to the crisis.
“Our government is doing the right thing for the country,” he said. “We are very lucky that we did. The important thing is that the government has sent a message that depositors can trust the banking system. Without this trust, we would have three or maybe four banks that are too big to fail, that we have to pay taxes on clearly, and our community system and regional banks are toast.
Last week, it was revealed that SVB – a major lender to start-ups – was struggling to find funds to plug a hole close to $2 billion.
News of the biggest failure of a US bank since the 2008 financial crisis led to rapid deposit withdrawals, with SVB’s problems also causing collateral damage in stablecoins, payrolls and global banking stocks.
SVB shares were halted on Friday after falling 60% a day earlier, with staff reportedly asked to work from home as the lender failed to find a buyer.
On Monday morning, it emerged that banking giant HSBC had bought the UK arm of SVB for just £1 ($1.21), saving many UK tech companies that fear collapse if a rescue deal isn’t struck.
However, the US parent company failed to find a buyer. On Sunday, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Treasury Department announced that all SVB depositors—as well as Signature Bank depositors, which also collapsed over the weekend—will be protected without loss to taxpayers due to the use of the “systemic risk exception.”
President Joe Biden called the regulatory intervention a step that would “protect workers, small businesses, taxpayers, and our financial system.”
Missed a red flag?
Although regulators face questions about whether red flags were missed when it came to SVB, Ackman argued that the government’s response to SVB’s collapse was correct.
Ackman – who founded Perishing Square Capital Management in 2004 and is also its CEO – noted on Sunday night that the regulatory intervention “is not a bailout in any form,” suggesting that bondholders and investors who “didn’t monitor enough” SVB will bear the consequences of that failure.
The collapse of the Silicon Valley Bank will act as a “massive wake-up call” for those in charge of banks across America, he added-but warned other banks were likely to fail even if the regulator has stepped in.
“Have [FDIC]the US Treasury and the Federal Reserve did not intervene today, we would have had the 1930s bank opening continued the first thing there causing enormous economic damage and hardship for millions,” said Ackman. “Many banks will fail even if there is an intervention, but we now have a clear road map of how the government will manage.”
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