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Bill Ackman warns US regional banking system is at risk

Bill Ackman warns US regional banking system is at risk
Bill Ackman, chief executive officer of Pershing Square Capital Management LP, speaks during a Bloomberg Television interview in New York on Wednesday, Nov. 1, 2017.

The regional banking system is at risk and the regulator’s failure to update and expand its insurance regime has “hammered more nails in the coffin”, billionaire investor Bill Ackman said, commenting about US bank failures this week.

The regional banking system is at risk. SVB’s depositors’ bad weekend woke up uninsured depositors everywhere. The rapid rise in rates impaired assets and drained deposits. Zeroing out shareholders and bondholders massively increased the banks’ cost of capital. CRE losses loom.…

— Bill Ackman (@BillAckman) May 3, 2023

First Republic Bank was the second-biggest bank failure in US history, and the fourth regional lender to collapse since early March after Silvergate Capital Corp., SVB Financial Group’s Silicon Valley Bank and Signature Bank. JPMorgan Chase & Co. acquired First Republic on Monday, beating out rivals including PNC Financial Services Group Inc. 

The billionaire investor said First Republic wouldn’t have failed if the Federal Deposit Insurance temporarily guaranteed deposits while a new regime were created. “Instead, we watch the dominoes fall at great systemic and economic cost,” he said.

PacWest Bancorp, a Beverly Hills-based lender, plunged as much as 60% in postmarket trading Wednesday and has been considering a breakup or a capital raise, according to people familiar with the matter.

“Banking is a confidence game. At this rate, no regional bank can survive bad news or bad data as a stock price plunge inevitably follows, insured and uninsured deposits are withdrawn and ‘pursuing strategic alternatives’ means an FDIC shutdown over the coming weekend,” Ackman said.

Michael Barr, the vice chair for supervision for the Federal Reserve, and FDIC chair Martin Gruenberg are scheduled to testify at the Senate Banking Committee hearings on US bank failures later this month. 

The hearings come as Barr leads an effort at the Fed to review a range of rules that apply to firms with more than $100 billion in assets, including stress testing and liquidity requirements, following the failures. BM/DM

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