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Bill Ackman, Pershing Square Capital Management CEO has weighed in on the collapse of Silicon Valley Bank, urging the US government to protect all of the bank's depositors to avoid an economic meltdown.
Taking to Twitter, Ackman's analysis warns that action needs to be taken by Monday to prevent further damage. The failure of SVB on Friday is the most significant bank collapse in the US since the Great Recession, with the bank holding $209 billion in assets at the end of 2022.
The bank's shares dropped 60% on Friday morning, following a 60% decline the previous day, and SVB sold off $1.75 billion in shares to compensate for dwindling customer deposits.
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", he noted.
"These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST," Ackman added.
"There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits."
Ackman said that "the destruction of these important institutions" will begin once depositors start draining money from regional and community banks.
He asserted that the US government could have guaranteed SVB's deposits in exchange for penny warrants to avoid its collapse and create the potential for profits.
"Instead, I think it is now unlikely any buyer will emerge to acquire the failed bank," he continued. "The gov’t’s approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk."
Ackman further argued, "The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits."
Meanwhile, Bob Elliott, CIO of Unlimited, financial services, said that FDIC decisions on SVB determine whether they risk a bank run trillions of dollars in size.
"One-third of US deposits are in small banks and nearly 50% are uninsured. Haircutting SVB depositors will raise sensible questions about holding deposits at any small bank, risking a broader run," Elliott tweeted.
Elliott informed that the US banking system has a very long tail with over 4,000 banks in total operating. "The FDIC insures small deposits in all the banks in the US, but that only covers about 9tln of the nearly 17tln of the outstanding deposit base."
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