Billionaire investor Bill Ackman is warning that the US economy is at the precipice of disaster after the Federal Reserve chose to increase interest rates yet again, while the Treasury has thus far rejected full deposit insurance for customers of lending institutions. His warning came against a backdrop of rising interest rates devaluing bank assets and panicked investors beginning to pull deposits from smaller regional banks to park them with larger institutions, or in investments they hope will have greater security.
On Twitter Wednesday, Ackman wrote, “When combined with the higher cost of debt and deposits due to rising rates, consider what the impact will be on lending rates and our economy. The longer this banking crisis is allowed to continue, the greater the damage to smaller banks and their ability to access low-cost capital.”
His warning comes after Wednesday’s announcement by the Federal Reserve it would raise interest rates 25 basis points, bringing the fed funds rate into a range of 4.75% to 5%, as it continues its war on inflation.
Ackman went on to note, “Trust and confidence are earned over many years, but can be wiped out in a few days. I fear we are heading for another train wreck. Hopefully, our regulators will get this right.”
Ackman then went on to attack US Secretary of the Treasury Janet Yellen, for her refusal to offer complete support to depositors, to allay their fears over losing their deposits.
Although she initially made comments to reassure depositors, promising to protect regional banks, she has since said publicly that there is no consideration underway for enacting “blanket insurance” of all deposits regardless of size, as one measure to allay fears and reduce the threat of future bank runs destabilizing more banks, absent congressional approval.
Ackman made the case that, “The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back.”
Following the sudden collapse of midsized lender Silicon Valley Bank, Western governments and central banks have sought to assure bank customers and prevent a cascade of bank failures. The contagion almost spread to Europe where increased scrutiny amped up outflows at troubled lender Credit Suisse, forcing the Swiss government to step in and broker a merger with its larger rival UBS to shore up depositor confidence and stem the bank’s outflows.
Even so, studies have emerged detailing numerous other banks, in one case almost 200 in the US, which suffer from the same weaknesses as Silicon valley Bank, and which could be poised to fail as well, if outflows reach sufficient levels.
