{"id":18617,"date":"2023-03-12T03:49:19","date_gmt":"2023-03-12T03:49:19","guid":{"rendered":"https:\/\/crowdfundjunction.com\/blog\/billionaire-warns-of-imminent-bank-runs-if-government-fails-to-guarantee-all-svb-deposits-economics-bitcoin-news\/"},"modified":"2023-03-12T03:49:19","modified_gmt":"2023-03-12T03:49:19","slug":"billionaire-warns-of-imminent-bank-runs-if-government-fails-to-guarantee-all-svb-deposits-economics-bitcoin-news","status":"publish","type":"post","link":"https:\/\/crowdfundjunction.com\/blog\/billionaire-warns-of-imminent-bank-runs-if-government-fails-to-guarantee-all-svb-deposits-economics-bitcoin-news\/","title":{"rendered":"Billionaire Warns of Imminent Bank Runs if Government Fails to Guarantee All SVB Deposits \u2013 Economics Bitcoin News"},"content":{"rendered":"

(Originally posted on : Bitcoin News )<\/b>
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Billionaire Bill Ackman has warned of \u201cvast and profound\u201d consequences of the U.S. government letting Silicon Valley Bank (SVB) fail without protecting all depositors. \u201cNo company will take even a tiny chance of losing a dollar of deposits as there is no reward for this risk. Absent a systemwide FDIC deposit guarantee, more bank runs begin Monday am,\u201d he cautioned.<\/strong><\/p>\n

Government Has Until Monday Morning to Fix Its \u2018Soon-to-Be-Irreversible Mistake\u2019<\/h2>\n

Billionaire Bill Ackman, CEO and portfolio manager of Pershing Square Capital Management, has warned of \u201cvast and profound\u201d consequences of the U.S. government allowing Silicon Valley Bank to fail<\/a> without protecting all depositors.<\/p>\n

He tweeted Saturday that the government has until Monday morning to fix its \u201csoon-to-be-irreversible mistake,\u201d elaborating:<\/p>\n

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By allowing SVB to fail without protecting all depositors, the world has woken up to what an uninsured deposit is \u2014 an unsecured illiquid claim on a failed bank.<\/p>\n<\/blockquote>\n

He stressed that unless JPMorgan, Citibank, or Bank of America acquires Silicon Valley Bank before Monday\u2019s market open, or the government provides a guarantee for all of SVB\u2019s deposits, \u201cthe giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the \u2018systemically important banks\u2019 (SIBs).\u201d<\/p>\n

Expecting these funds to be \u201ctransferred to the SIBs, U.S. Treasury (UST) money market funds, and short-term UST,\u201d Ackman pointed out that \u201cThere is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits.\u201d The billionaire continued:<\/p>\n

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These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions.<\/p>\n<\/blockquote>\n

\u201cAlready thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week,\u201d he added. Moreover, he noted that the increased demand for short-term UST \u201cwill drive short rates lower complicating the Federal Reserve\u2019s efforts to raise rates to slow the economy.\u201d<\/p>\n

Government\u2019s Failure to Guarantee SVB Deposits Has \u2018Vast and Profound\u2019 Consequences<\/h2>\n

Ackman explained that Silicon Valley Bank\u2019s senior management \u201cmade a basic mistake\u201d of investing short-term deposits in longer-term, fixed-rate assets, therefore \u201ca bank run ensued\u201d when short-term interest rates increased.<\/p>\n

Not only senior SVB management \u201cscrewed up,\u201d the billionaire asserted that the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) \u201calso screwed up\u201d in their risk monitoring of the banking system. \u201cSVB should have been high on their watch list with more than $200B of assets and $170B of deposits from business borrowers in effectively the same industry,\u201d Ackman said, emphasizing:<\/p>\n

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The FDIC\u2019s and OCC\u2019s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation\u2019s highest potential and highest growth businesses \u2026 while also permanently impairing our community and regional banks\u2019 access to low-cost deposits.<\/p>\n<\/blockquote>\n

The Pershing Square executive shared that his \u201cback-of-the-envelope review of SVB\u2019s balance sheet suggests that even in a liquidation, depositors should eventually get back about 98% of their deposits.\u201d<\/p>\n

He argued that the cost of the government guaranteeing SVB deposits \u201cwould be minimal\u201d even without assigning any franchise value to the bank. Meanwhile, \u201cThe unintended consequences of the government\u2019s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday,\u201d he cautioned.<\/p>\n

Possible Bank Runs Starting on Monday<\/h2>\n

In a follow-up tweet Saturday, Ackman wrote that according to a source he trusts, \u201cSVB depositors will get ~50% on Mon\/Tues and the balance based on realized value over the next 3-6 months.\u201d The billionaire stressed:<\/p>\n

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If this proves true, I expect there will be bank runs beginning Monday am at a large number of non-SIB banks. No company will take even a tiny chance of losing a dollar of deposits as there is no reward for this risk. Absent a systemwide FDIC deposit guarantee, more bank runs begin Monday am.<\/p>\n<\/blockquote>\n

Ackman further revealed on Twitter that neither he nor his company, Pershing Square, has any direct exposure to Silicon Valley Bank. However, he is \u201cpersonally an investor in some of the less well known, mostly seed stage venture and biotech funds and some early stage startups which may have some exposure to SVB,\u201d the billionaire detailed, adding that collectively, his \u201cventure exposure\u201d to the troubled bank is less than 10% of his assets.<\/p>\n

Do you agree with Bill Ackman? Let us know in the comments section below.<\/strong><\/em><\/p>\n

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\nKevin Helms <\/h6>\n

\nA student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.

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Image Credits<\/b>: Shutterstock, Pixabay, Wiki Commons<\/em><\/p>\n

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Disclaimer<\/strong>: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com<\/a> does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.<\/p>\n<\/div>\n

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