Hedge fund manager Bill Ackman says more banks will fail even if U.S. authorities step

Billionaire investor Bill Ackman is warning that more banks may fail, even if the US government intervenes to restore confidence in the banking system.

Following the collapse of Silicon Valley Bank, Ackman had urged the government to step in and protect all of the bank’s depositors.

Although he praised the government’s response in providing a “clear roadmap” for managing bank failures in this instance and in the future, he still believes that more banks could fail.

Ackman commended the government for providing a plan that would ensure depositors could trust the banking system.

He stated that without this confidence, only a few banks would be too big to fail, leaving taxpayers on the hook, and community and regional banks would collapse.

Ackman believes that the people who screwed up will pay, and investors who did not adequately oversee their banks will be zeroed out, and bondholders will suffer a similar fate.

The Federal Reserve announced that no taxpayer money would be involved in the recent banking failures, and any losses to the Deposit Insurance Fund would be recovered by a special assessment on banks, as required by law.

Regulators have also set up a new facility to give banks access to emergency funds and made it easier for banks to borrow from it in emergencies.

Ackman compared the government’s response to Silicon Valley Bank’s collapse to the global financial crisis of 2007-2009, stating that the former was not a bailout.

In the global financial crisis, the government injected taxpayer money into banks in the form of preferred stock. Bondholders were protected, shareholders were diluted, and taxpayer money was put at great risk.

However, in the recent banking failures, shareholders and bondholders were wiped out, and the FDIC insurance fund capitalized by premiums paid by banks will absorb any losses.

Silicon Valley Bank is set to reopen under the newly created Deposit Insurance National Bank of Santa Clara.

The FDIC created the Deposit Insurance National Bank of Santa Clara to protect insured depositors, and the FDIC immediately transferred all insured deposits of Silicon Valley Bank to the DINB.

The main office and all branches of Silicon Valley Bank will reopen under the control of the DINB, and banking activities will resume no later than Monday, March 13, including online banking and other services.

Customers with accounts in excess of the insured amount of $250,000 should contact the FDIC toll-free at 1-866-799-0959.

Although the government’s response provides a clear roadmap for managing bank failures in the future, there is still concern about the investors.

Ackman believes that bank boards and managements have received a massive wake-up call, and being a director or CEO of a bank that fails is no fun.

He thinks that they will face years of litigation, regulatory investigations, personal liability, potential civil and criminal charges, and enormous reputational damage.

Despite the recent banking failures, the American people and American businesses can have confidence that their bank deposits will be there when they need them.


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