Friday’s failure of Silicon Valley Bank owing to a run on the bank’s cash ushered in a weekend of confusion for clients.
Signature Bank in New York is another bank that has collapsed. Saturday, Treasury Secretary Janet Yellen stated that the federal government will not intervene to preserve the 16th largest bank in the country, the California SVB.
“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 on the CBS “Face The Nation” on Saturday.
“But we are concerned about depositors, and we’re focused on trying to meet their needs,” she said.
One financial expert discussed the potential consequences over the weekend, highlighting the urgency of the issue.
William Ackman, a multibillionaire hedge fund manager, warned of an imminent economic catastrophe that might occur when banks reopen on Monday morning following the weekend failure of Silicon Valley Bank.
Ackman, of Pershing Square Capital Management, issued an urgent plea to President Joseph Biden and his government to rescue the bank’s customers. He emphasized that failing to intervene might have a domino effect on the industry’s weaker banks.
Ackman, according to the Daily Mail, is concerned that clients may swiftly remove funds from their accounts owing to the volatility of the banking system. As a result, he urged the federal government to act and remedy a mistake that might become permanent by Monday morning in order to avert a potential disaster.
Ackman’s urgent call followed SVB Financial Group CEO Greg Becker’s video statement acknowledging the “very challenging” 48 hours preceding the bank’s collapse on Friday. In a long post published on Twitter, Ackman outlined what he believes are all the potential repercussions of government inactivity should Biden decide not to intervene.
The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or… https://t.co/SqdkFK7Fld
— Bill Ackman (@BillAckman) March 11, 2023
The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs).
These monies will be moved to SIBs, US Treasury (UST) money market funds, and US Treasury (UST) short-term obligations. There is already pressure to shift capital to short-term T.U.S. and T.U.S. money market accounts due to the significantly greater rates on risk-free T.U.S. securities compared to bank deposits. These withdrawals would deplete the liquidity of community, regional, and other banks, so initiating the demise of these vital institutions. The increasing demand for short-term UST will force short rates down, making it more difficult for the Federal Reserve to raise rates to slow the economy. CONTINUE READING…