Billionaire Bill Ackman has called on the United States government to guarantee all deposits held by Silicon Valley Bank (SVB) within the next 48 hours or risk the destruction of many financial institutions.
In a tweet on March 11, Ackman warned that failure to guarantee all of SVB’s deposits before Monday could result in the withdrawal of substantially all uninsured deposits from all banks, not just the systemically important banks (SIBs).
The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. 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. Absent @jpmorgan @citi or… https://t.co/SqdkFK7Fld
— Bill Ackman (@BillAckman) March 11, 2023
Ackman argued that the result would be a “giant sucking sound” heard worldwide, as the community, regional, and other banks are hit by liquidity drain and the destruction of these crucial institutions. He stressed that the only other way to prevent this was if major financial institutions, such as JPMorgan Chase, Citibank, or Bank of America, acquired SVB before Monday.
Ackman noted that SVB’s senior management had made a fundamental mistake and should be fired. He explained that the bank invested short-term deposits in longer-term, fixed-rate assets, and when short-term rates went up, a bank run ensued.
Ackman believes that even in liquidation, depositors should eventually get back approximately 98% of their deposits. However, he argued that eventually is too long when one has payroll to meet next week.
Bob Elliot, CEO of investment firm Unlimited, had earlier stated that the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) decisions regarding the future of SVB may affect regional banks across the United States, putting trillions of dollars at risk of a bank run.
Elliot noted that nearly a third of deposits in the United States are held in small banks, and approximately 50% of those deposits are uninsured.
Ackman reiterated that the FDIC should guarantee all SVB bank deposits by Sunday night, along with a proposed plan. He had proposed that the US government should have stepped in on Friday to guarantee SVB’s deposits, and safeguard the bank’s franchise value. That measure could have been transferred to a new owner in return for an equity injection.
Ackman’s call for the US government to guarantee SVB’s deposits serves as a warning to the financial industry. It reminds them of the importance of effective risk management and regulatory compliance.
While the proposed plan may alleviate the immediate concerns, it also highlights the need for effective regulation and accountability within the industry to prevent future occurrences.
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