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Billionaire investor Bill Ackman says US banks depositing $30 billion into First Republic creates a 'false sense of confidence'

Bill Ackman, CEO of Pershing Square Capital, speaks at the Wall Street Journal Digital Conference in Laguna Beach, California, U.S., October 17, 2017.
Billionaire investor Bill Ackman calls for a temporary systemwide bank deposit guarantee immediately.REUTERS/Mike Blake
  • Bill Ackman said a plan to deposit $30 billion into First Republic Bank creates a "false sense of confidence."

  • He said the banking crisis is beyond what the private sector can solve on its own.

  • He is calling for a temporary systemwide deposit guarantee immediately.

Billionaire investor Bill Ackman has criticized a plan by 11 US banks to deposit $30 billion into First Republic Bank, or FRB, saying it creates a "false sense of confidence" in the San Francisco lender.

Treasury Secretary Janet Yellen, a former Fed chair, has apparently pushed the big Wall Street banks to "recycle" some of the deposits they have received from First Republic, by putting the billions back into the lender, Ackman said in a long tweet on Thursday.

"The result is that FRB default risk is now being spread to our largest banks," the founder and CEO of hedge fund Pershing Square Capital Management added.

"Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy," he said.

He is instead calling for a temporary systemwide deposit guarantee immediately. The US has guaranteed access deposits at the collapsed Silicon Valley Bank and Signature Bank, New York, but the Federal Deposit Insurance Corporation only insures up to $250,000 per account owner, per ownership category.

"We are beyond the point where the private sector can solve the problem and are in the hands of our government and regulators," he said.

 

Ackman said he has no investments in the banking sector but was just "extremely concerned about financial contagion risk spiraling out of control and causing severe economic damage and hardship."

"I have said before that hours matter. We have allowed days to go by. Half measures don't work when there is a crisis of confidence," tweeted Ackman.

The collapse of Silicon Valley Bank and Signature Bank, New York has rattled the banking sector, sparking fears of a contagion that could lead to the next global financial crisis.

Both banks were shut after a run on deposits, which drove fears that the panic could also cause a run on other regional banks. Consumers are now moving their deposits from smaller to larger banks, such as Bank of America, Citigroup, and JPMorgan Chase, the Financial Times reported on Tuesday, citing sources familiar with the matter.

First Republic has been assuring customers of its liquidity since the implosion of Silicon Valley Bank — which in turn triggered concerns about the financial health of regional banks. On Sunday, First Republic said it was getting $70 billion of additional funding from the Federal Reserve and JPMorgan Chase after its share price slumped sharply.

But ratings agencies S&P Global and Fitch still cut the lender's credit rating on Wednesday due to concerns that depositors could pull their funds.

First Republic Bank's shares closed 10% higher at $34.27 apiece on Thursday and were 6% lower in pre-market trade at 5.41 a.m. on Friday. The stock is down 72% so far this year.

Read the original article on Business Insider