Billionaire warns of imminent bank run if government fails to guarantee all SVB deposits – Finance Bitcoin News

Billionaire Bill Ackman has warned of “big and deep” consequences if the US government allows Silicon Valley Bank (SVB) to fail without protecting all depositors. “No company will take the slightest chance of losing a dollar of deposits, since there is no reward for that risk. Absent a system-wide FDIC deposit guarantee, more bank runs will begin Monday morning,” he warned.

The government has until Monday morning to fix its ‘soon-to-be-irreversible error’

Billionaire Bill Ackman, CEO and portfolio manager of Pershing Square Capital Management, has warned of “big and deep” consequences if the US government allows Silicon Valley Bank to fail without protecting all depositors.

He tweeted on Saturday that the government has until Monday morning to fix its “soon to be irreversible mistake”, elaborating:

By allowing SVB 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.

He stressed that unless JPMorgan, Citibank or Bank of America buy Silicon Valley Bank before Monday’s market open, or the government guarantees all of SVB’s deposits, “the giant suction sound you will hear will be the withdrawal of virtually all uninsured deposits from all but the ‘systemically important banks’ (SIBs).”

Anticipating these funds to “move into SIB, US Treasury (UST) money market funds and short-term UST,” Ackman pointed out that “There is already pressure to move cash into short-term UST and UST money market accounts due to the significantly higher yields which are available on risk-free UST vs. bank deposits.” The billionaire continued:

These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these vital institutions.

“Already thousands of the fastest-growing, most innovative venture-backed companies in the United States will begin failing to take payroll next week,” he added. Moreover, he noted that the increased demand for short-term UST “will drive short-term interest rates lower, complicating the Federal Reserve’s efforts to raise interest rates to slow the economy.”

The government’s failure to guarantee SVB deposits has “big and deep” consequences

Ackman explained that Silicon Valley Bank’s senior management “made a fundamental mistake” by investing short-term deposits in long-term fixed-rate assets, and therefore “a bank run” occurred when short-term interest rates rose.

Not only did senior SVB management “screw up”, the billionaire claimed that the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) “also screwed up” in their risk monitoring of the banking system. “SVB should have been high on their watch list with more than $200B in assets and $170B in deposits from corporate borrowers in virtually the same industry,” Ackman said, emphasizing:

The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of thousands of our nation’s highest-potential, highest-growth businesses … while permanently weakening our communities and regional banks’ access to low-cost deposits.

The Pershing Square CEO shared that his “back-end review of SVB’s balance sheet suggests that even in a liquidation, depositors should ultimately get back about 98% of their deposits.”

He argued that the costs of the state guaranteeing SVB deposits “would be minimal” even without assigning the bank any franchise value. Meanwhile, “The unintended consequences of the government’s failure to guarantee SVB deposits are vast and profound and must be assessed and addressed before Monday,” he warned.

Possible bank run starting on Monday

In a follow-up tweet Saturday, Ackman wrote that according to a source he trusts, “SVB depositors will receive ~50% on Mon/Tue and the balance based on realized value over the next 3-6 months.” The billionaire emphasized:

If this turns out to be true, I expect there will be bank runs from Monday morning to a large number of non-SIB banks. No company will take a small chance of losing a dollar of deposit since there is no reward for this risk. Absent a system-wide FDIC deposit guarantee, more bank runs begin Monday morning.

Ackman further disclosed on Twitter that neither he nor his company, Pershing Square, has any direct exposure to Silicon Valley Bank. However, he is “personally an investor in some of the lesser known, mostly seed stage venture and biotech funds and some early stage startups that may have some exposure to SVB,” the billionaire detailed, adding that collectively his “venture exposure” to the troubled bank is less than 10% of his assets.

Do you agree with Bill Ackman? Let us know in the comments section below.

Kevin Helms

A student of Austrian economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the intersection of finance and cryptography.