Bill Ackman says the US did the right thing in protecting SVB’s depositors

Billionaire investor Bill Ackman said the US government’s move to protect depositors after the collapse of a Silicon Valley bank was “not a bailout” and would help restore confidence in the banking system.

In his latest tweet about SVB’s collapse, the hedge fund investor said the US government had done the “right thing”.

“This was not a bailout by any means. Those who violated will bear the consequences,” wrote the CEO of Pershing Square. “Most importantly, our government has sent a message that depositors can trust the banking system.”

Ackman’s comments came after bank regulators announced plans to freeze depositors at the Silicon Valley bank, which closed Friday after the bank closed over the weekend.

“Without that confidence, we’re left with three or maybe four too-big banks where the taxpayer is clearly on the hook, and our national system of community and regional banks is toast,” Ackman added.

Ackman further explained that bank shareholders and bondholders would suffer in this event, and the losses would be covered by the Federal Deposit Insurance Corporation (FDIC) insurance fund.

This is in contrast to the great financial crisis of 2007-2008, when the US government pumped taxpayers’ money into banks in the form of preferred stock and bondholders were protected.

Some saw the government’s decisive action as an important step to stem the contagion fear caused by the collapse of SVB, the main bank for startups and other venture capital firms.

Not everyone agrees.

Peter Schiff, chief economist and global strategist at Euro Pacific Capital, said the move was “another mistake” by the US government and the Fed.

He explained in another tweet: “The guarantee means depositors put their money in the riskiest banks and pay higher interest because there is no downside risk.”

Result?

“…all banks are taking a huge risk to pay higher rates. So in the long run, many banks will fail, and the long-term costs will be much greater,” Schiff said.

In a joint statement issued late Sunday by the Federal Reserve, the Treasury Department and the FDIC, regulators said there would be no relief and no taxpayer costs associated with any of the new plans.

“Today we are taking decisive action to protect the US economy while strengthening public confidence in the banking system,” Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chairman Martin Gruenberg said in a joint statement.

Along with the move, the Fed also said it would establish a new Bank Term Funding Program aimed at protecting institutions affected by the market volatility of the SVB failure.

The statement also said Signature Bank in New York will be closed due to systemic risk. Signature has become a popular source of funding for cryptocurrency companies.

Ackman tweeted: “If the government had not intervened today, we would have 1930s banking going on Monday, causing massive economic loss and hardship for millions of people.”

“Despite the intervention, more banks are likely to fail, but now we have a clear road map for how the government will manage them.”

However, some analysts are not convinced that the actions of regulators will strengthen confidence in the US banking system and limit the recession.

“I don’t think you can understate the riskiness of the American banking system,” veteran banking analyst Dick Bove told CNBC’s “Squawk Box Asia” on Monday.

“Right now, I don’t think you expect the Treasury secretary, the head of the Fed and the head of the FDIC to make a joint statement — if they don’t really understand the risk of the banking system and the banking system and the banking system. “Americans in America are facing this right now,” he said.

Bove noted that the US banking system is at risk for two reasons.

“Number one, depositors have lost faith in American banks: forget about people who have or haven’t taken money from SVB. “In the last 12 months, deposits in American banks have decreased by 6%,” he noted.

“The second group that has lost faith in the American banking system is investors,” he added. “Investors have lost confidence because American banks have a lot of accounting gimmicks to show income when there is no income, to show capital when there is no capital.”

He went on to say that accounting practices for the banking industry were “absolutely unacceptable” and that banks were using “accounting gimmicks” to hide what the true equity in these banks was.

“The government is now on its feet. And the government is trying to do everything it can to stop what could be a huge, huge negative impact,” Bove said.

The White House said President Joe Biden will address the nation Monday morning on how to strengthen the banking system.

“I am determined to hold those responsible for this mess fully accountable and to continue our efforts to strengthen oversight and regulation of the big banks so that we don’t get into this situation again,” Biden said.

Jeremy Siegel, a business professor at the Wharton School, noted that government intervention would “fortunately” reduce the costs of SVB’s collapse.

He said SVB is more like a regional bank than other Wall Street players. As a result, the government is unlikely to take a political hit from its latest move.

“They are more in the category of what we call regional banks. And in practice politicians prefer regional banks, as opposed to big names that can be easily hit on target … a political hit,” Siegel told CNBC’s “Street Signs Asia.” “

“They have a lot of political support. “All congressmen and women will listen to their people and districts,” Siegel said. “Smaller banks are not JP Morgans, Goldman Sachs and others. It’s the banks we use… down to the regional level.”

— CNBC’s Jeff Cox contributed to this report.