An indication hangs at Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.
Noah Berger | AFP | Getty Images
Billionaire investor Bill Ackman said the U.S. government’s motion to guard depositors after the implosion of Silicon Valley Bank is “not a bailout” and helps restore confidence within the banking system.
In his latest tweet on SVB’s collapse, the hedge fund investor said the U.S. government did the “right thing.”
“This was not a bailout in any form. The individuals who screwed up will bear the results,” wrote the CEO of Pershing Square. “Importantly, our gov’t has sent a message that depositors can trust the banking system.”
Ackman’s comments got here after banking regulators announced plans over the weekend to backstop depositors with money at Silicon Valley Bank, which was shut down on Friday after a bank run.
“Without this confidence, we’re left with three or possibly 4 too-big-to-fail banks where the taxpayer is explicitly on the hook, and our national system of community and regional banks is toast,” Ackman added.
Ackman further explained that on this incident, shareholders and bondholders of the banks might be mainly those affected, and the losses might be absorbed by the Federal Deposit Insurance Corporation’s (FDIC) insurance fund.
That is in contrast to the nice financial crisis in 2007-2008, where the U.S. government injected taxpayers’ money in the shape of preferred stock into banks, and bondholders were protected.
The decisive government motion was seen by some as a critical step in stemming contagion fears brought on by the collapse of SVB, a key bank for start-ups and other venture-backed firms.
Not everyone agrees.
Peter Schiff, chief economist and global strategist at Euro Pacific Capital, said the move is “one more mistake” by the U.S. government and the Fed.
He explained in one other tweet: “The bailout means depositors will put their money within the riskiest banks and receives a commission higher interest, as there isn’t any downside risk.”
The result?
“… all banks will tackle greater risks to pay higher rates. So within the long-run many more banks will fall, with far greater long-term costs,” Schiff said.
Clear roadmap
In a press release late Sunday — issued jointly by the Federal Reserve, Treasury Department and the FDIC — regulators said there could be no bailouts and no taxpayer costs related to any of the brand new plans.
“Today we’re taking decisive actions to guard the U.S. economy by strengthening public confidence in our banking system,” said a joint statement from Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg.
Together with that move, the Fed also said it’s making a latest Bank Term Funding Program geared toward safeguarding institutions affected by the market instability of the SVB failure.
The statement — also said Recent York-based Signature Bank might be closed resulting from systemic risk. Signature had been a preferred funding source for cryptocurrency firms.
Ackman said within the tweet that had the federal government “not intervened today, we’d have had a Nineteen Thirties bank run continuing very first thing Monday causing enormous economic damage and hardship to hundreds of thousands.”
“More banks will likely fail despite the intervention, but we now have a transparent roadmap for the way the gov’t will manage them.”
‘Lost faith’
Still, some analysts will not be convinced the regulators’ motion will shore up confidence within the U.S. banking system and limit the fallout.
“I do not think that you may understate the danger that the American banking system is in,” veteran bank analyst Dick Bove, told CNBC’s “Squawk Box Asia” on Monday.
“Right at this moment, I do not think you’d expect to see the Treasury Secretary, the pinnacle of the Fed and the pinnacle of the FDIC, making a public joint statement — unless they understood clearly the danger that the banking system and the American in America is facing right away,” he said.
Bove identified the U.S. banking system is in danger for 2 reasons.
“Primary, the depositors have lost faith in American banks: Forget the individuals who may or may not have been taking money out of SVB. Deposits in American banks have dropped 6% within the last 12 months,” he noted.
“The second group that has lost faith within the American banking system are investors,” he added. “The investors have lost faith since the American banks have an entire bunch of accounting tricks that they’ll play, to indicate earnings when earnings don’t exist, to indicate capital when capital doesn’t exist.”
He went on to say that accounting practices for the banking industry are “totally unacceptable,” and that banks are using “accounting gimmickry to avoid indicating what the true equity is in these banks.”
“The federal government is now on its back feet. And the federal government is attempting to do whatever it may to stop what could possibly be a serious, major negative thrust,” Bove said.
Political support
The White House said President Joe Biden will address the nation on Monday morning on how one can strengthen the banking system.
“I’m firmly committed to holding those chargeable for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks in order that we will not be on this position again,” Biden said in a press release.
Jeremy Siegel, Wharton School of business professor, noted the federal government’s intervention will “fortunately” stem the losses from SVB’s fallout.
He said SVB is more like a regional bank unlike other big Wall Street players. Because of this, the federal government is unlikely to take a political hit from its latest motion.
“They’re more within the category we call regional banks. And really, politicians love regional banks, in contrast to the large names, that are easy to focus on, to … hit politically,” Siegel told CNBC’s “Street Signs Asia.”
“They’ve plenty of political support. All of the Congress men and ladies, are going to be hearing from their people and their district,” Siegel said. “The smaller banks will not be the JP Morgans, Goldman Sachs and all those. These are the banks that we use … getting right down to the regional level.”
— CNBC’s Jeff Cox contributed to this report.
