Billionaire hedge fund manager Bill Ackman has warned of an economic collapse that could occur when banks open on Monday morning after the collapse of Silicon Valley Bank over the weekend.
Ackman, of Pershing Square Capital Management, urgently called on President Joe Biden and his administration to intervene and protect all of the bank’s depositors. He cautioned that failure to act could have a ripple effect on other smaller banks in the industry.
In a lengthy statement released on Twitter, Ackman laid out what he believes are all the potential ramifications of inaction on the part of the government should Biden decide not to step in. He urged the federal government to take action and correct a mistake that could soon become irreversible by Monday morning to avoid a potential catastrophe.
Ackman believes that customers may quickly withdraw money from their accounts due to concerns about the banking system’s instability. If this happens, the funds will be transferred to the ‘systemically important banks’ (SIBs), US Treasury (UST) money market funds, and short-term UST.
The withdrawals will drain liquidity from community, regional, and other banks, beginning the destruction of these important institutions. The increased demand for short-term UST will drive short rates lower, complicating the Federal Reserve’s efforts to raise rates to slow the economy.
Ackman’s urgent call came on the heels of a video message from SVB Financial Group’s CEO, Greg Becker, acknowledging the “incredibly difficult” 48 hours leading up to the bank’s collapse on Friday. He highlighted the fact that most of SVB’s held-to-maturity securities consisted of mortgage bonds issued by government-sponsored entities, such as Fannie Mae and Freddie Mac. He also said the bank’s collapse was an “oversight failure” by the government, which was equally responsible.
According to Ackman, SVB’s collapse was inevitable due to the bank’s concentrated exposure to the tech sector, making it an outlier in terms of risk. Additionally, he noted that the tech community’s connectedness on social media platforms like Twitter contributed to the rapid withdrawal of funds after Peter Thiel advised people to pull their money out.
Ackman pointed the finger directly at the bank’s board and senior management team for the mismanagement of the institution and called for their removal and replacement with a new team. Treasury Secretary Janet Yellen said on the CBS “Face The Nation” on Saturday that the federal government would not step in to save the bank, the 16th largest in the nation.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out… and the reforms that have been put in place means we are not going to do that again,” she said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
The SVB’s collapse has left many people concerned about the safety of their money in other banks, leading some to speculate that there could be a run on the banks. As such, Ackman is urging people to keep calm and avoid panic.
He said, “This is a scary time, but we cannot afford to panic. We need to stay level-headed and make sure that we are taking steps to protect ourselves and our money. If you have money in a bank that you are worried about, make sure that you are not withdrawing it all at once. This will only make things worse. Instead, take out what you need for your immediate needs and leave the rest in the bank.”
Many experts agree with Ackman’s assessment of the situation and are urging the government to take swift action to prevent a catastrophe. Only time will tell whether the government will heed these warnings and take the necessary steps to protect the American people.