Despite government intervention in the Silicon Valley Bank collapse, more banks are still likely on the road to failure, Pershing Square founder Bill Ackman warned.
Ackman cheered and defended the government's decision to guarantee deposits above the federally insured ceiling of $250,000, stressing it "was not a bailout in any form" and that the government has provided a roadmap for addressing the coming storm of potential bank failures.
SILICON VALLEY BANK COLLAPSE: U.S. OFFICIALS REPORTEDLY WEIGH BACKSTOPPING DEPOSITORS
"More banks will likely fail despite the intervention, but we now have a clear roadmap for how the gov’t will manage them. Bank boards and managements have received a massive wake up call," Ackman warned in a lengthy tweet.
This was not a bailout. During the GFC, the gov’t injected taxpayer money in the form of preferred stock into banks. Bondholders were protected and shareholders were diluted to varying degrees. Taxpayer money was put at great risk. Many people who screwed up suffered minimal to… https://t.co/mjwcnVRV9X
— Bill Ackman (@BillAckman) March 13, 2023
On Sunday the heads of the Federal Reserve, Treasury Department, and Federal Deposit Insurance Corporation announced that depositors in SVB will get access to their money on Monday, backstopping deposit withdrawals in a move intended to stave off contagion, or spread of SVB-induced panic across the financial system.
SVB, the 16th largest federally insured bank, suddenly collapsed last Friday and was taken over by regulators after announcing it needed to raise over $2.2 billion to stay solvent. Earlier in the week, SVB spooked investors when it revealed that it sold treasuries at a loss, prompting a run on the bank.
Critics have bristled at the government's actions, decrying it as a de facto bailout. The actions came after the FDIC reportedly commenced an auction for SVB. Treasury Secretary Janet Yellen appeared to rule out a traditional federal bailout earlier in the day Sunday.
Ackman countered critics and insisted that it was not a bailout.
"This was not a bailout. During the GFC, the gov’t injected taxpayer money in the form of preferred stock into banks. Bondholders were protected and shareholders were diluted to varying degrees. Taxpayer money was put at great risk. Many people who screwed up suffered minimal to no consequences. Those were bailouts," Ackman tweeted.
"Here, shareholders and bond holders have been wiped out. The @FDICgov insurance fund capitalized by premiums paid by banks will absorb any losses. The fund will recoup any losses by assessing more premiums on the banks," he added.
Under FDIC policy, deposits are typically guaranteed up to $250,000, but many SVB deposits exceeded that threshold. Over the weekend, government officials combed through various options to safeguard depositors. In addition to the deposit backstopping, the Federal Reserve announced plans to offer banks a facility to help them meet depositor withdrawals.
"Had the @FDICgov @USTreasury and @federalreserve not intervened today, we would have had a 1930s bank run continuing first thing Monday causing enormous economic damage and hardship to millions," Ackman continued.
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SVB was founded in the 1980s and gained prominence during the COVID-19 pandemic which fueled a tech boom. Its securities portfolio shot up from $27 billion in the first quarter of 2020 to roughly $127 billion by the end of 2021.
Leading up to its demise on Thursday, customers withdrew $42 billion in a single day. For comparison, Washington Mutual "lost $16 billion dollars over 10 days" during the Great Recession, according to Sen. Mark Warner (D-VA).