Billionaire Bill Ackman, CEO of Pershing Square Capital Management, has voiced concerns over the US regional banking system and warned that time is running out for the government to fix the banking system. Ackman has pointed the finger at the Federal Deposit Insurance Corporation (FDIC), blaming the agency’s “failure” to update and expand its insurance regime for exacerbating the situation. He highlighted that the rapid rise in rates impaired assets and drained deposits.
First Republic Bank’s failure
Ackman has stressed that First Republic Bank’s failure would have been avoided if the FDIC temporarily guaranteed deposits while a new guarantee regime was created. He criticised the government for its lack of action and pointed out that “instead, we watch the dominoes fall at great systemic and economic cost.” First Republic Bank was seized by regulators earlier this week, and JPMorgan Chase bought most of its assets.
G-SIBs have an unfair advantage
Ackman also argued that globally systemic banks (G-SIBs) have an unfair competitive advantage since only their uninsured depositors can sleep soundly. He warned that until the playing field is levelled, regional banks are at grave risk.
System-wide deposit guarantee regime needed
Ackman concluded that the government needs to take action now before it is too late. He stressed that as each domino falls, the next weakest bank begins to wobble. Investors will not be willing to bet on a wobbling bank until they are rewarded, and until the best sale is the last price. Ackman urged the FDIC, US Treasury, and the government to wake up and implement a systemwide deposit guarantee regime. He warned that we are running out of time to fix this problem, and we cannot afford to wait for more unnecessary bank failures before taking action. Confidence in a financial institution is built over decades and destroyed in days.