Bill Ackman, hedge fund manager, billionaire and CEO of Pershing Square Capital Management, thinks that the US banking crisis is heading for a train wreck, and there is absolutely nothing out there that can stop this disaster from happening.
Ackman, who has a current net worth of 3.4 billion dollars and a company whose assets are near to 18.5 billion dollars, spoke about the Silicon Valley and Signature Bank acquisition on Wednesday and said that the long term cost of equity capital for non systemically important banks will be affected severely and all shareholders and investors alike will face huge financial hindrance.
On Financial Stability of Systemically Important Banks
Systemically Important Banks (SIB) are banks that are thought of as extremely crucial and important, and their failure has a massive effect on the wider economy and the financial system. There are thirty systemically important banks, as stated by the Financial Stability Board’s 2022 List.
Ackman said that the crisis faced by the larger banks is directly affecting the economic stability of the smaller banks, and this inadvertently suggests that the US banking crisis is heading for a train wreck. The smaller banks will no longer be able to cope with the damage and access the low-cost capital.
The Federal Reserve has soaring high rates
The Federal Reserve increased its benchmark rates by 25 base points, which is a little more than 4.75 per cent, which was around 0 per cent last year. The United States Treasury Secretary Yellen denied guaranteeing the people their deposits, and this led Ackman to further state that a huge number of deposits will now get out flying. He said that the 5 per cent increase in rates looked a lot less appealing and that deposit outflows would begin effective immediately.
Non systemically important banks are taking the worst blow
The 25 base point increase puts huge pressure on the non systemically important banks, and these will have to endure a lot in terms of economic pressure to pull through. Silicon Valley Bank and Signature Bank have already made headlines for succumbing to the pressure. The US Banking Crisis is heading for a train wreck, and it is one of the worst in recent times. Ackman suggested that the decisions made by the Federal Reserve and US Treasury are not at all substantial and need to be reconsidered.
Also Read: Robert Kiyosaki says, “Fed rate hikes will crash stocks.”