Luke Ellis, CEO of the prominent Man Group hedge fund, has cautioned society that what we’ve seen from Silicon Valley Bank’s collapse is only the beginning. In fact, Ellis predicts a further number of banks will shutter within the next two years.
On Wednesday, March 22, while attending the Bloomberg conference in London, Ellis declared his thoughts on whether or not he believes the banking crisis has ended.
“That depends on what you define by a crisis. I think a significant amount of banks will no longer exist in 12 to 24 months,” the CEO of the largest publicly-traded hedge fund said.
Ellis noted that larger financial institutions could take control of some banks, such as UBS’s purchase of Credit Suisse for approximately $3.23 billion. Still other smaller banks may end up becoming defunct; however, he said that the Federal Reserve and regulatory bodies are actively working to avoid any bank failures from occurring.
Ellis also cautioned that regional banks in the U.S. and challenger banks in the UK are particularly vulnerable amidst this current economic unrest, stating that news, whether it is good or bad, now spreads much more quickly due to social media platforms. He warned furthermore that stocks may experience further distress as turbulence within banking industry persists.
Obviously, the consequences of a collapsing banking system need to be taken into consideration very seriously. Once banks start to collapse, it creates a domino effect of disruption. The trust in the financial system is quickly eroded and uncertainty arises overnight, as businesses and individuals struggle to keep up with the evolution of the situation.
As people scramble to take their money out of banks, in what is known as a “run on the bank,” businesses are unable to access credit, investment opportunities are eliminated, and financial markets experience wild swings.
The shrinking number of working banks can also lead to inflation and economic depression. Consequently, the repercussions of a disintegrating banking system should be given serious consideration.
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