The US government ‘did the right thing’ for America by rushing to save Silicon Valley Bank deposit holders, according to billionaire investor Bill Ackman, who claimed failure to act would have plunged the country in a 1930s-style bank rush.
In a Tweeter On Sunday evening, the legendary investor shared his thoughts on the collapse of Silicon Valley Bank (SVB) and how the US government responded to the crisis.
“Our government has done the right thing for the country,” he said. “We are very lucky that he did. Above all, our government has sent a message that depositors can trust the banking system. Without that trust, we end up with three or maybe four too-big-to-fail banks where the taxpayer is explicitly responsible, and our national system of community and regional banks is fried.
Last week it was revealed that SVB…a key lender for start-ups— was struggling to raise money to plug a nearly $2 billion hole in its finances.
News of America’s Largest Bank Failure since the 2008 financial crisis triggered a wave of deposit withdrawals, also with the problems of SVB inflicting collateral damage on stablecoins, salaries, and global banking stocks.
Trading in SVB shares was halted on Friday after falling 60% a day earlier, with staff would have asked to work from home as the defaulting lender sought a buyer.
On Monday morning, it emerged that banking giant HSBC had bought SVB’s UK arm for just £1 ($1.21)rescuing many UK tech companies that feared they would collapse if a bailout deal was not struck.
However, its American parent company could not find a buyer. On Sundaythe Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Treasury Department announced that all depositors of SVB, as well as depositors of Signature Bankwhich also collapsed over the weekend, would be protected without any loss to taxpayers through the invocation of a “systemic risk exception”.
President Joe Biden has touted the regulatory intervention as a measure that would “protect workers, small businesses, taxpayers and our financial system.”
Missed red flags?
Although regulators are face questions as to whether any red flags had been missed in relation to SVB, Ackman argued that the government’s response to SVB’s collapse had been the correct one.
Ackman – who founded Perishing Square Capital Management in 2004 and is also its CEO – noted on Sunday night that the regulators’ intervention was “not a bailout in any form”, stressing that bondholders and investors who “failed to adequately monitor” SVB would bear the consequences of its failure.
The fall of Silicon Valley Bank would act as a “massive warning” to bank officials across America, he added, but he warned that more banks were at risk of failure even if regulators intervened. .
“Had the [FDIC], the US Treasury and the Federal Reserve had not intervened today, we would have had a 1930s bank run that would continue into the first hour of Monday, causing enormous economic damage and hardship to millions of people,” Ackman said. “More banks are likely to fail despite the intervention, but we now have a clear roadmap for how the government will handle them.”
FortuneThe CFO Daily newsletter is the must-have analysis every finance professional needs to get ahead. register today.