- Billionaire investor Bill Ackman said the US government’s intervention to protect depositors after the Silicon Valley bank collapse, “is not a bailout” and helps restore confidence in the banking system.
- In a tweet, the Pershing Square CEO said the SVB fallout on Monday indicated the government had done the “right thing”.
- But not all Wall Street analysts are convinced that the regulators’ action will boost confidence in the US banking system and limit the fallout.
- “I don’t think you can underestimate the severity of the US banking system,” veteran banking analyst Dick Bove told CNBC’s “Squawk Box Asia” Monday.
A sign hangs at the Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.
Noah Burger | AFP | Getty Images
Billionaire investor Bill Ackman said the US government’s measure to protect depositors after the collapse of the Silicon Valley bank “is not a bailout” and helps restore confidence in the banking system.
In his latest tweet about the collapse of SVB, the hedge fund investor said the US government did the right thing.
“This was in no way a bailout. The people who messed it up will suffer the consequences,” wrote the Pershing Square CEO. “Most importantly, 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 back depositors with funds at the Silicon Valley bank, which closed on Friday after the bank was put into operation.
Ackman added, “Without that trust, we’re left with three or maybe four too-big-to-fail banks, where the taxpayer is on the hook, our national system of society and regional banks are elite.”
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, in which 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 critical step in halting contagion fears stemming from the collapse of SVB, a major bank for startups and other venture-backed firms.
Not everyone agrees.
Peter Schiff, chief economist and global strategist at Euro Pacific Capital, said the move was “another misstep” by the US government and the Fed.
He explained in another tweet: “The bailout plan means that depositors will put their money in riskier banks and get paid at higher interest, as there are no downside risks.”
“…all banks will take greater risks to pay higher rates. So, in the long run, more banks will fall, with greater costs in the long run,” Schiff said.
in the current situation Late Sunday — issued jointly by the Federal Reserve, the Treasury Department and the Federal Insurance Corporation — 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 American economy by strengthening public confidence in our banking system,” said a joint statement from Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen, and FDIC Chairman Martin Gruenberg.
Along with the move, the Fed also said that it is creating a new bank financing program aimed at protecting institutions affected by market instability caused by the SVB failure.
The statement – also mentioned that Signature Bank of New York will be closed due to systemic risks. Signature has been a popular funding source for cryptocurrency companies.
Had the government not intervened today, Ackman said in a tweet, we would have had a 1930’s banking business going on first thing Monday causing massive economic damage and hardship to millions.
“It is possible that more banks will fail despite the intervention, but we now have a clear roadmap for how the government will manage it.”
However, some analysts remain unconvinced that the regulators’ action will boost confidence in the US banking system and limit the fallout.
“I don’t think you can underestimate the severity of the US banking system,” veteran banking analyst Dick Bove told CNBC’s “Squawk Box Asia” Monday.
“At the moment, I don’t think you would expect to see the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Chairman of the FDIC, issue a joint public statement — unless they clearly understand the risks that the banking system and Americans face right now.”
Bove noted that the US banking system is in danger for two reasons.
“Number one, depositors have lost faith in US banks: forget the people who may or may not take money from SVB. Deposits in US banks have fallen 6% in the last 12 months,” he noted.
“The second group that has lost confidence in the US banking system are the investors,” he added. “Investors have lost faith because American banks have a whole bunch of accounting tricks they can play, to show profits when there are no profits, to show capital when there is no capital.”
He went on to say that the banking industry’s accounting practices are “totally unacceptable”, and that banks use “accounting tricks to avoid referring to true equity in these banks”.
“The government is now on its hind legs. The government is trying to do everything it can to stop what could be a significant 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 deeply committed to holding those responsible for this mess to account and continuing our efforts to strengthen oversight and regulation of the big banks so we are never in this situation again,” Biden said. in the current situation.
Jeremy Siegel, a Wharton School of Business professor, noted that government intervention would “fortunately” stem losses from the SVB fallout.
He said SVB is more like a regional bank than the other big players on Wall Street. As a result, the government is unlikely to receive a political blow from its recent action.
“They’re more in the category that we call regional banks. And in fact, politicians like regional banks, as opposed to the big names, which are easier to target, … political hit,” Siegel said in an interview on CNBC’s “Street Signs Asia.” “
“They have a lot of political support,” Siegel said. “All the men and women of Congress will hear from their people and their district.” “The smaller banks are not JPMorgans, Goldman Sachs and all of those. These are the banks we use… right down to the regional level.”
— CNBC’s Jeff Cox contributed to this report.
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