Mar 12, 2023

Government Urged to Guarantee SVB Deposits in 48 Hours

Billionaire Bill Ackman has issued an urgent plea to the United States government, urging them to guarantee all deposits held by Silicon Valley Bank (SVB) within the next 48 hours, or risk the destruction of many financial institutions.

In a tweet on Mar. 11, Ackman, CEO of hedge fund management firm Pershing Square, warned of a “giant sucking sound” that would be heard from the withdrawal of substantially all uninsured deposits from all banks, besides the systemically important banks (SIBs), should the government fail to guarantee all SVB’s deposits before the open on Monday.

He said that this would be the result of the world realizing what an uninsured deposit is – “an unsecured illiquid claim on a failed bank.” Ackman went on to explain that these withdrawals would drain liquidity from community, regional and other banks, and begin the destruction of these crucial institutions, if the U.S. government does not protect all depositors.

Ackman suggested that the only other way to prevent this from happening would be in the unlikely event that major financial institutions such as JPMorgan, Citibank or Bank of America, acquire SVB before Monday. He said this could have been avoided if the U.S. government had stepped in on Friday to guarantee SVB’s deposits, adding that the long-standing bank’s franchise value could have been safeguarded and transferred to a new owner in return for an equity injection.

The billionaire also said that SVB’s senior management had made a basic mistake, and should be fired. He suggested that after conducting a back-of-the-envelope review of SVB’s balance sheet, depositors should eventually get back approximately 98% of their deposits, even in a liquidation. However, he argued that “eventually” is too long when you have payroll to meet next week.

Ackman tweeted shortly after, reiterating that the Federal Deposit Insurance Corporation (FDIC) should guarantee all SVB bank deposits by Sunday night, and proposed a plan to do so.

This comes after Bob Elliot, CEO of investment firm Unlimited, said that the Federal Reserve and FDIC decisions regarding the future of SVB may affect regional banks across the United States, putting trillions of dollars at risk of a bank run. Elliot stated that nearly a third of deposits in the United States are held in small banks, with 50% of those deposits being insured.

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