‘No bank safe unless depositor has govt guarantee’: Bill Ackman on Silicon Valley Bank crisis

American billionaire investor Bill Ackman has warned that no bank is safe unless its depositors have a clear government guarantee that they always have complete access to the total value of their deposits. He added the non-systematically important banks will likely continue to face large withdrawals without the same. 

Ackman, who is also the CEO of the US-based hedge fund management company Pershing Square Capital Management, tweeted, “In a world with Twitter - speed spread of information and smart-phone-enabled bank accounts where withdrawals can be made with the push of a button, no bank is safe from a run unless the depositor has an explicit gov't guarantee that ensures that they always have complete access to the total value of their deposits. Without this guarantee, the non-systemically important banks (non-SIB banks) will likely continue to experience large withdrawals.”

Ackman further wrote, “If in fact, your deposit is safe if a bank fails, as in SVB and Signature, then why is it difficult for the government to confirm that your deposit is money good when your bank is still operating? We need a temporary systemwide deposit guarantee that will remain in place until our outmoded $250k deposit guarantee program is modernised. Since this new system can’t be created over a weekend, we need a stop-gap measure to get us through the next few days and weeks.”

Going ahead, he noted that this issue of large withdrawals gets aggravated due to the stock market as consumers sense that it is only a matter of time before any bank goes bust when its stock collapses. He wrote, “This problem is compounded by the stock market.  Consumers now understand that when a bank stock collapses, it is only a matter of days before the bank fails due to liquidity demands by their depositors.”

Ackman's warning comes in the wake of the recent collapse of Silicon Valley Bank (SVB), which was seized by the US regulators on Friday after depositors rushed to withdraw their funds. It became the largest American bank to fail since Washington Mutual (WaMu) went bust in 2008. Before its collapse, the SVB was the 16th largest lender in the US till December 2022 and had nearly $209 billion in assets. Following this, New York’s Signature Bank was also seized by regulators on Sunday. 

Ackman further said, “The alternative is one bank failure after the next. The weakest three have already fallen. The market is already telling you who is number four. This is not the way one maintains confidence in a banking system.”

Towards the end, Ackman explained the impact this could have on the US economy. “Lastly, the more banks that fail, the higher the cost of capital will be for non-SIB banks.  This will have a profound long-term impact on the cost of capital for small and medium-sized businesses, a cost that has already increased materially due to the overall rise in rates.  It is not helpful to put even more pressure on these critically important drivers of our economy."

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