Billionaire Bill Ackman warned of “enormous and profound” consequences if the US government lets Silicon Valley Bank (SVB) fail without protecting all depositors. He said, “Because no company would be rewarded for the risk of potentially losing even a single dollar of their deposits. Without a system-wide FDIC deposit guarantee, he warned, “further bank runs will begin Monday morning.
The government has until Monday morning to fix “mistakes that cannot be immediately undone”
Billionaire Bill Ackman, CEO and portfolio manager of Pershing Square Capital Management, warns of “enormous and profound” consequences if the US government allows Silicon Valley Bank to fail without protecting all depositors .
He elaborated on Saturday, tweeting that the government must fix its “soon to be irreparable mistake” by Monday morning.
Letting SVB fail without protecting all depositors woke the world up to what uninsured deposits are: unsecured, illiquid claims against a failing bank.
Unless JP Morgan, Citibank, and Bank of America take over Silicon Valley Bank before the market opens on Monday, or the government guarantees all SVB deposits, “a huge sucking sound will be heard, all but the ‘systemically important banks’ (SIBs) . virtually all uninsured deposits will be withdrawn from the banks,” he emphasized.
Expecting these funds to “move into SIBs, U.S. Treasury (UST) money market funds, and short-term USTs,” Ackman noted that “risk-free USTs offer significantly higher yields than bank deposits, so cash in short-term UST and UST money market accounts There is already pressure to move it.” The billionaire continued.
These withdrawals will rob community, regional, and other banks of liquidity and begin the destruction of these important institutions.
“Already thousands of the fastest growing and most innovative ventures in the United States will start failing to make payroll next week.” He added. He further noted that the increased demand for short-term USTs will “lower short-term interest rates and complicate the Federal Reserve’s efforts to raise interest rates due to the economic slowdown.”
The government’s failure to guarantee SVB deposits has “vast and profound” consequences
Ackman explained that Silicon Valley Bank executives made the “fundamental mistake” of investing their short-term deposits in long-term fixed-rate assets, which “caused a bank run” when short-term interest rates rose.
Not only did SVB’s management “screw up,” the billionaire asserted, but the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) “screwed up” in monitoring risk in the banking system. SVB, with over $200 billion in assets and $170 billion in funds, was supposed to be at the top of their watch list. However, “I personally invest in lesser-known, mostly seed-stage venture companies, biotech funds, and some early-stage startups, and may have some exposure to SVB,” the billionaire elaborated, adding that the troubled bank He added that his total “venture exposure” to SVB is less than 10% of his assets.
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