Billionaire hedge fund manager Bill Ackman has warned the US government that failing to guarantee all deposits held by Silicon Valley Bank (SVB) within 48 hours could result in the destruction of several financial institutions. In a tweet on March 11, Ackman called for the government to step in and protect all depositors, warning that a “giant sucking sound” would be heard from the withdrawal of uninsured deposits from all banks, not just the systemically important banks.
Ackman argued that the world would realize what an uninsured deposit is – an unsecured illiquid claim on a failed bank – and that this would lead to a drain on liquidity from community, regional, and other banks. He said that this could “begin the destruction” of these crucial institutions if the government does not take action.
Ackman also suggested that major financial institutions, such as JPMorgan Chase, Citibank, or Bank of America, could acquire SVB before Monday to prevent this outcome. However, he argued that this was an unlikely event and that the government needed to step in to guarantee SVB’s deposits.
According to Ackman, the situation could have been avoided if the US government had stepped in on Friday to guarantee SVB’s deposits. He argued that the long-standing bank’s “franchise value” could have been safeguarded and transferred to a new owner in return for an equity injection.
SVB is a bank that specializes in providing financial services to the technology industry. Its clients include startups, venture capital firms, and private equity firms. The bank has been in operation for over 35 years and has over $100 billion in assets under management.
SVB’s deposits are currently uninsured, meaning that they are not protected by the Federal Deposit Insurance Corporation (FDIC). This is because the bank’s deposits are considered to be predominantly from institutional clients and high net worth individuals, who are not covered by the FDIC’s deposit insurance program.
In response to Ackman’s tweet, SVB issued a statement saying that it was “well capitalized and well positioned to support our clients.” The bank also said that it had no plans to seek an acquisition and that its focus was on continuing to serve its clients.
The US government has not yet responded to Ackman’s call for deposit guarantees for SVB. However, the situation highlights the risks that can arise from uninsured deposits and the need for investors to carefully consider the risks and benefits of depositing their funds with financial institutions.