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Spreading the risk of financial contagion to achieve “a false sense of confidence” in First Republic Bank is “bad policy”, Pershing Square’s Bill Ackman said in a tweet.
The activist investor said that the actions of the largest US banks in depositing $30 billion in the First Republic “Raises more questions than it answers.” The plan was developed with US regulators and includes contributions from JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley.
“I’ve said before that time matters. We let days pass. Half measures don’t work when there’s a crisis of confidence,” he added.
To be clear, the risks taken by each individual bank are relatively limited. The $5 billion deposited at Bank of America represents less than a third of the new client deposits seen arriving in just a few days as customers seek safety. And even in a bad scenario where the bank loses half of the money it put in the First Republic, it will remain above the required capital ratio.
Ackman reiterated that he has no investments long or short in the banking sector. “I am very concerned about the risk of a financial conflict that goes out of control and causes serious economic damage and hardship,” he said.
.@SecYellen apparently pushing SIBs to recycle some of the deposits they receive from @firstrepublic return to FRB within 120 days. The result is that FRB default risk has spread to our largest banks.
Spreading the risk of financial contagion to achieve a false… https://t.co/rDwQophwly
– Bill Ackman (@BillAckman) March 17, 2023
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