by Ben Levisohn, Carleton English and Jack Hough discuss markets after Federal Reserve Chair Powell testifies before Congress, the collapse of the Silicon Valley Bank, the impact on the banking industry and railroad safety spending data.
Billionaire investor Bill Ackman on Saturday penned a lengthy analysis of Silicon Valley Bank’s failure, arguing that the US government must protect all of the bank’s depositors.
The financial expert says the government must act by Monday to avoid an economic meltdown.
The collapse of Silicon Valley Bank on Friday marks the worst collapse of a US financial institution since the Great Recession. SVB, the 16th largest bank in the US, had total assets of $209 billion at the end of 2022.
The failure was prompted by shares falling 60% Friday morning after plummeting 60% the previous day. SVB had sold $1.75 billion worth of stock to offset falling customer deposits.
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William “Bill” Ackman, Founder and Chief Executive Officer of Pershing Square Capital Management LP, gestures while speaking during an interview with Bloomberg Television in London, Britain on Wednesday, January 14, 2015. (Photographer: Chris Ratcliffe/Bloomberg via Getty Images/Getty Images)
The CEO of Pershing Square Capital Management took to Twitter to give his take on the situation.
“By allowing @SVB_Financial without protecting all depositors, the world has become aware of what an uninsured deposit is – an unsecured, illiquid claim on a failed bank,” he began.
He then predicted that people would rush to withdraw huge sums of uninsured deposits from all non-systemically important banks (SIBs).
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“These funds will be transferred to the SIBs, the US Treasury Department (UST) money market funds and the short-term UST,” Ackman posited. “There is already pressure to transfer cash to short-term UST and UST money market accounts, as risk-free UST deposits offer significantly higher returns compared to bank deposits.”
Ackman said that “the destruction of these important institutions” will begin once depositors start withdrawing money from state and local banks. He claimed that the US government could have guaranteed the SVB’s deposits in exchange for penny warrants to avoid the collapse and create upside potential.
“Instead, I now think it’s unlikely that a buyer will show up to take over the failed bank,” he continued. “The government’s approach has guaranteed that more risk is concentrated in SIBs at the expense of other banks, which in turn creates more systemic risk.”
The headquarters of Silicon Valley Bank in Santa Clara, California, U.S., on Friday March 10, 2023. Silicon Valley Bank became the biggest U.S. banking failure in more than a decade after its longstanding customer base was troubled and torn by tech startups became (Photographer: Philip Pacheco/Bloomberg via Getty Images/Getty Images)
“The failure of the FDIC and OCC to do their job should not result in the destruction of thousands of our nation’s highest potential and highest growth companies (and the resulting loss of tens of thousands of jobs for some of our most talented younger generations ) while permanently affecting our local and regional banks’ access to cheap deposits,” argued Ackman.
Amid concern and uncertainty over the SVB’s failure, the White House pledged that post-2008 reforms would protect the US economy.
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“Our banking system is in a fundamentally different place than it was ten years ago,” said Cecilia Rouse, chair of the White House Council of Economic Advisers. “The reforms that were introduced at that time really offer the kind of resilience that we want.”
