Billionaire Bill Ackman and venture capitalist veterans warn the Silicon Valley Bank collapse threatens to wipe out tech companies and smash smaller banks.
There’s nothing like a crisis – and the potential loss of lots of cash – to upend the natural order of things.
“These funds will be transferred to the SIBs, US Treasury money market funds and short-term UST. There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST versus bank deposits. These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions.
The market was waking up to this danger last week, and the regional US banks saw their share prices belted. The KWB ETF that tracks these institutions dropped 15 per cent in a week, but individual falls are even bigger than this: New York’s Signature Bank dropped 23 per cent on Friday night, and almost 40 per cent last week, while Los Angeles-based PacWest Bancorp saw its stock fall 52 per cent in two days.But we saw bigger banks can be caught up in this, too.
Of course, it’s not just Silicon Valley tech founders at risk here. In London, a group of 250 tech founders have written to Jeremy Hunt, the British chancellor of the exchequer, asking for urgent help. But while the risk to the stability of the banking sector looks limited at this moment, the potential for SVB’s collapse to damage confidence in multiple sectors of economies and markets means this moment must be taken seriously.
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