Bill Ackman Predicts More Banks Will Fail
On March 12, U.S. regulators took decisive action to prevent contagion from the collapse of Silicon Valley Bank. The Treasury Department, FDIC, and Federal Reserve announced that all depositors of the failed Californian bank will receive their money in full on March 13. Additionally, the Fed is creating a new Bank Term Funding Program (BTFP) to safeguard institutions affected by the collapse of SVB. Eligible depository institutions can apply for loans up to one year in length, pledging qualifying assets as collateral.
These measures provide assurance that depositor money from any U.S. bank is now guaranteed, including depositors from Signature Bank New York, which also closed on the same day. SVB experienced a bank run after announcing plans to raise $2.25 billion and issuing new common and convertible preferred shares to shore up its finances following the sale of its bonds at a $1.8 billion loss. The FDIC took control of SVB and became the manager of $175 billion in customer deposits, creating a new entity and indicating that unsecured depositors with over $250,000 in their accounts would not have access to their money for the time being.
The measures announced on March 12 eliminate uncertainties for companies with SVB accounts, lines of credit, and credit facilities. Despite the backstop put in place by the Fed, some financiers, such as Bill Ackman, believe that other banks will still fail. Michael Burry also warned of another major bank collapse and compared SVB to disgraced broker Enron, which collapsed in 2001. Investors are currently watching First Republic Bank, whose share price fell more than 65% in pre-market trading. Bank boards and managements have received a wake-up call, and the collapse of SVB underscores the potential for years of litigation, regulatory investigations, personal liability, potential civil and criminal charges, and enormous reputational damage for bank directors and CEOs.