Billionaire Bill Ackman, CEO and portfolio manager of Pershing Square Capital Management, has warned of “vast and profound” consequences if the US government lets Silicon Valley Bank (SVB) fail without protecting all depositors. In a tweet, he stated that the government had until Monday morning to fix its “soon-to-be-irreversible mistake”. Ackman’s warning came after the US regulators closed down SVB due to the bank’s senior management making a basic mistake by investing short-term deposits in longer-term, fixed-rate assets, which caused a bank run when short-term interest rates increased. The FDIC and the Office of the Comptroller of the Currency also “screwed up” in their risk monitoring of the banking system. SVB’s depositors are reportedly to receive 50% of their deposit on Monday/Tuesday and the balance based on realised value over the next three to six months, causing concerns about potential bank runs at a large number of non-SIB banks.
Ackman warned that no company would take a chance of losing a dollar of deposits without reward and that there would be increased demand for short-term US Treasury (UST) funds, leading to draining liquidity from community, regional and other banks, and beginning the destruction of these important institutions. Moreover, Ackman believes that thousands of the fastest growing, most innovative venture-backed companies in the US will begin to fail next week as they fail to make payroll. The increased demand for short-term UST will drive short rates lower, complicating the Federal Reserve’s efforts to raise rates to slow the economy.
Ackman has urged the government to act to provide a guarantee for all of SVB’s deposits, stating that the cost of the government guaranteeing SVB deposits “would be minimal” even without assigning any franchise value to the bank.
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