Bill Ackman says US did the right thing in protecting SVB depositors
A sign hangs at the Silicon Valley Banks headquarters in Santa Clara, California, March 10, 2023.
Noah Berger | AFP | Getty Images
Billionaire investor Bill Ackman said the US government’s move to protect depositors after the Silicon Valley bank implosion was “not a bailout” and was helping to restore confidence in the banking system.
In his recent tweet about the collapse of the SVB, the hedge fund investor said the US government did the “right thing”.
“This was in no way a rescue operation. The people who screwed up will face the consequences,” the Pershing Square CEO wrote. “Importantly, our government has sent a message that depositors can trust the banking system.”
Ackman’s comments came after banking regulators announced over the weekend plans to provide money to support depositors at Silicon Valley Bank, which closed Friday after a bank run.
“Without that trust, we’re left with three or possibly four too-big-to-fail banks that explicitly leave the taxpayer on the hook, and our national system of community and regional banks will be toasted,” Ackman added.
Ackman further explained that the main victims of the incident will be shareholders and bondholders of the banks, and the losses will be borne by the Federal Deposit Insurance Corporation (FDIC) insurance fund.
This is in contrast to the Great Financial Crisis of 2007-2008, when the US government injected taxpayers’ money into the banks in the form of preferred stock and bondholders were protected.
The government’s decisive action was seen by some as a crucial step in curbing contagion fears sparked by the collapse of SVB, a key bank for start-ups and other venture capital-backed businesses.
Not everyone agrees.
Peter Schiff, chief economist and global strategist at Euro Pacific Capital, said the move was “another mistake” by the US government and the Fed.
He explained in another tweet: “The bailout means depositors put their money in the riskiest banks and receive higher interest rates as there is no downside risk.”
The result?
“…all banks will take greater risks in order to pay higher interest rates. So, in the long run, many more banks will fail, with far greater long-term costs,” Schiff said.
Clear timetable
In an opinion Late Sunday — issued jointly by the Federal Reserve, the Treasury Department and the FDIC — regulators said there would be no bailouts and no taxpayer costs associated with any of the new plans.
“Today we are taking decisive action to protect the U.S. economy by increasing public confidence in our banking system,” said Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chairwoman in a joint statement , Martin Gruenberg.
Along with this move, the Fed also said it is launching a new Bank Term Funding Program aimed at protecting institutions hit by the market instability of the SVB default.
The statement also said that New York-based Signature Bank will be closed due to systemic risk. Signature has been a popular funding source for cryptocurrency companies.
Ackman said in the tweet that if the government hadn’t intervened today, “we would have had a 1930’s bank run, which resumed first thing Monday, would have caused tremendous economic damage and hardship to millions.”
“Despite the intervention, more banks are likely to fail, but we now have a clear roadmap of how the government will manage them.”
‘Lost Faith’
Still, some analysts are unconvinced that regulators’ actions will boost confidence in the US banking system and limit the fallout.
“I don’t think one should underestimate the danger that the American banking system is in,” veteran banking analyst Dick Bove told CNBC.Squawk Box Asia” on Monday.
“I don’t think you would expect, right now, that the Treasury Secretary, the Fed chief and the FDIC chief would make a joint public statement — unless they have the risk that the banking system and American in America are at risk.” just ahead,” he said.
Bove pointed out that the US banking system is at risk for two reasons.
“First, depositors have lost confidence in American banks: forget the people who may or may not have withdrawn money from the SVB. Deposits in US banks are down 6% over the past 12 months,” he noted.
“The second group that has lost confidence in the American banking system is investors,” he added. “Investors have lost faith because American banks have a variety of accounting tricks they can use to show income when there is no income, to show capital when there is no capital.”
He went on to say that accounting practices are “completely unacceptable” for the banking industry and that banks “use accounting tricks to avoid disclosing what the true equity of these banks is.”
“The government is now on its hind legs. And the government is trying to do whatever it can to stop a big, big negative push,” Bove said.
political support
The White House said President Joe Biden will address the nation Monday morning on how to strengthen the banking system.
“I am determined to hold those responsible for this mess fully accountable and to continue our efforts to strengthen oversight and regulation of larger banks so that we don’t find ourselves in this position again,” Biden said in an opinion.
Jeremy Siegel, a professor at the Wharton School of Business, noted that government intervention will “fortunately” contain losses from the aftermath of SVB.
He said SVB is more of a regional bank than other big Wall Street players. As a result, the government is unlikely to suffer a political blow from its recent action.
“They belong more to the category that we call regional banks. And indeed, politicians love regional banks, unlike the big names who can easily be targeted for … political hits,” Siegel told CNBC’s Street Signs Asia. “
“They have a lot of political support. All members of Congress will hear from their people and their district,” Siegel said. “The smaller banks aren’t JP Morgans, Goldman Sachs and all those. Those are the banks we use… to get down to the regional level.”
— CNBC’s Jeff Cox contributed to this report.
https://www.cnbc.com/2023/03/13/bill-ackman-says-us-did-right-thing-in-protecting-svb-depositors.html Bill Ackman says US did the right thing in protecting SVB depositors
