- Billionaire investor Bill Ackman has said the US government’s intervention to protect depositors after the Silicon Valley Bank implosion is “not a bailout” and is helping to restore confidence in the banking system.
- In a tweet, the Pershing Square CEO said Monday’s SVB fallout indicated the government had done the “right thing”.
- But not all Wall Street analysts are convinced that action by regulators will bolster confidence in the US banking system and limit the fallout.
- “I don’t think you can underestimate the danger to the US banking system,” veteran banking analyst Dick Bove told CNBC’s “Squawk Box Asia” on Monday.
A sign hangs at the Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.
Noah Berger | AFP | Getty Images
Billionaire investor Bill Ackman has said the US government’s action to protect depositors after the Silicon Valley Bank implosion is “not a bailout” and is helping to restore confidence in the banking system.
In his last tweet about SVB’s collapse, the hedge fund investor said the US government had done the “right thing”.
“This was by no means a bailout. People who messed up will suffer the consequences,” the Pershing Square CEO wrote. “It is important to note that our government has sent the message that depositors can trust the banking system.”
Ackman’s comments came after banking regulators announced plans over the weekend to prop up depositors with cash at Silicon Valley Bank, which was closed on Friday after a bank run.
“Without that trust, we’re left with three or maybe four too-big-to-fail banks where the taxpayer is explicitly responsible, and our national system of community and regional banks is fried,” Ackman added.
Ackman further explained that in this incident, the shareholders and bondholders of the banks will be mainly affected and the losses will be absorbed by the insurance fund of the Federal Deposit Insurance Corporation (FDIC).
This contrasts with the Great Financial Crisis of 2007-2008, where the US government pumped taxpayers’ money in the form of preferred stock into banks, and bondholders were protected.
The government’s decisive action was seen by some as a crucial step in stemming 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 that depositors will put their money in the riskiest banks and receive higher interest, because there is no downside risk.”
“…all banks will take greater risks to pay higher rates. So in the long run many more banks will fall, with far greater long-term costs,” Schiff said.
In a statement late Sunday — released jointly by the Federal Reserve, Treasury Department and FDIC — regulators said there would be no bailouts or costs to taxpayers associated with any of the new plans.
“Today, we are taking decisive action to protect the American economy by strengthening public confidence in our banking system,” Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen and Treasury Secretary Janet Yellen said in a joint statement. FDIC Chairman Martin Gruenberg.
Along with the move, the Fed also said it was creating a new bank term funding program aimed at protecting institutions affected by market instability following the failure of the SVB.
The statement also said that New York-based Signature Bank will be closed due to systemic risk. Signature was 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 1930s banking crisis that would continue into the first hour Monday, causing enormous economic damage and hardship to millions. of people”.
“More banks are likely to fail despite the intervention, but we now have a clear roadmap for how the government will handle them.”
Still, some analysts are not convinced that regulators’ action will bolster confidence in the US banking system and limit the fallout.
“I don’t think you can underestimate the danger to the US banking system,” veteran banking analyst Dick Bove told CNBC’s “Squawk Box Asia” on Monday.
“Right now, I don’t think you would expect to see the Secretary of the Treasury, the head of the Fed and the head of the FDIC make a joint public statement – unless they clearly understand the risk that the banking system and the American in America is facing right now,” he said.
Bove pointed out that the American banking system is in danger for two reasons.
“First, depositors have lost confidence in US banks: forget about people who have or have not withdrawn money from the SVB. Deposits in US banks have fallen 6% in the last 12 months,” said he noted.
“The second group that has lost faith in the US banking system are investors,” he added. “Investors have lost faith because American banks have a whole bunch of accounting tricks they can play, to show earnings when earnings don’t exist, to show capital when capital doesn’t exist.”
He went on to say that the banking industry’s accounting practices are “completely unacceptable” and that banks are using “accounting gimmicks to avoid showing what the true net worth of these banks is.”
“The government is now on its back feet. And the government is trying to do everything it can to stop what could be a major negative push,” Bove said.
The White House said President Joe Biden will address the nation Monday morning on how to strengthen the banking system.
“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen supervision and regulation of big banks so that we do not find ourselves in this position again,” Biden said in a statement.
Jeremy Siegel, a professor at the Wharton School of Business, noted that government intervention will “hopefully” stem the losses from the SVB fallout.
He said SVB was more like a regional bank unlike other big players on Wall Street. As a result, the government is unlikely to suffer a political blow from its latest action.
“They belong more in the category that we call regional banks. And in fact, politicians like regional banks, unlike the big names, who are easy to target, to … hit politically,” Siegel told “Street Signs Asia” from CNBC. “
“They have a lot of political support. All the men and women in Congress are going to hear from their people and their district,” Siegel said. “The smaller banks aren’t JP Morgans, Goldman Sachs and all those others. They’re the banks we use…down to the regional level.”
— CNBC’s Jeff Cox contributed to this report.