Big Short investor Michael Burry believes there is “no real danger” of a full-scale financial crisis following the collapse of Silicon Valley Bank.
Burry, who made a fortune correctly predicting the 2007 subprime crisis, made the assessment when a former top regulator also said “people need to keep their heads together” because most banks are doing well.
Burry tweeted: ‘The crisis could be resolved very quickly. I don’t see any real danger here.
Markets rallied slightly on Tuesday morning after shares in the banking sector tumbled yesterday amid fears that many institutions faced similar problems to SVB.
SVB was shut down by the Federal Deposit Insurance Corporation last week after a run on the bank left it unable to cover customer withdrawals. Since then, regulators and the FDIC have committed to covering customer deposits in full.
Michael Burry, whose predictions about the subprime crisis inspired the movie The Big Short, said he believes the crisis in the banking industry “will be resolved very quickly.”
Sheila Bair, a former FDIC director, said Tuesday: ‘I hope people keep their heads. Most of these regional banks are probably fine.
Burry had previously compared the crisis to the crashes of 2000 and 2008, adding: “People full of arrogance and greed take stupid risks and fail.” Both tweets have since been deleted, something Burry does with all of his posts.
Former FDIC Chairman Sheila Bair urged calm Tuesday, saying regulators should “be careful” with their messaging to avoid sparking panic.
She said: ‘I hope people keep their heads. Most of these regional banks are probably fine.’
Bair said it was “not clear” whether more banks would fail, but warned the industry to remain calm, saying SVB’s problems were “unusual.”
Bair told CNN: “I am concerned that everyone is being labeled with the same problems that the Silicon Valley bank had. That was an unusual situation.
He said that mismanagement by SVB bosses contributed to his downfall. The bank used customer deposits to buy Treasury bonds that have plummeted in value over the past year after the Fed raised interest rates to tackle rampant inflation.
Bair added: ‘I don’t see any widespread problems in our banking system. I think regulators need to be careful how they communicate this just because of the fact that they made this very unusual, very unusual, very extraordinary systemic risk determination. It’s a bit disturbing.’
He also said the Fed will likely pause further interest rate hikes to avoid a similar crisis at other banks exposed to the same problems that caused the SVB to fall.
Michael Burry (left) made a fortune predicting the 2007 subprime crisis and was played by Christian Bale in The Big Short (right)
Fears for the banking sector lingered Tuesday morning as Credit Suisse shares fell five percent to a record low in early trading after the bank confirmed material weaknesses and an $8 billion loss in 2022. .
However, Credit Suisse CEO Ulrich Koerner has insisted that “SVP’s credit exposure is not material.”
While Credit Suisse shares plummeted, US banks rallied vigorously.
First Republic Bank shares rose 42 percent in early trading, while Western Alliance and PacWest also rose.
SVB’s former staff have blamed its failure on ‘idiotic decisions’ rather than a looming global financial collapse.
They say CEO Greg Becker spooked the markets by announcing the bank’s vulnerabilities last week and his hope of raising billions to save it.
Credit Suisse shares fell on Tuesday morning, concerns about the banking sector remained
‘That was absolutely idiotic. They were being very transparent. It’s the exact opposite of what you would normally see in a scandal. But his transparency and candor brought them down,” said a former employee.
Experts also say that Credit Suisse, the world’s seventh-largest investment bank, is more regulated than SVP, so it is “conservatively positioned against any interest rate risk.”
Swiss financial regulator FINMA said on Monday it was trying to identify any potential contagion risks for the country’s banks and insurers following the collapses of Silicon Valley Bank and Signature Bank.
“FINMA takes note of the media reports on Silicon Valley Bank and Signature Bank in the US and is closely monitoring the situation,” FINMA said in a statement.
The last day of turbulence in the banking sector came when annual inflation in the US fell again in February to 6 percent.
Investors will hope that the latest evidence that inflation rates are cooling will restore some faith in the economy. February’s 6% CPI figure is the lowest annual inflation rate since September 2021
The positive news paved the way for the Federal Reserve to slow or halt its interest rate hikes as it grapples with a banking crisis.
Tuesday’s Labor Department report on the consumer price index showed that February marked the eighth straight month of declining annual inflation, from this summer’s peak of more than 9 percent.
The 6 percent figure for February is the lowest inflation rate since September 2021 and was in line with what economists had forecast for the month.
The Federal Reserve has been rapidly raising interest rates for the past year in an effort to control inflation by cooling the economy, but hopes to prevent the economy from slipping into recession with skyrocketing unemployment.