“The U.S. is supposed to be a capitalist economy, and that’s breaking down before our eyes. There’s been a loss of financial discipline with the government bailing out depositors in full.”
That was Ken Griffin, founder of hedge fund titan of Citadel in an interview with the Financial Times on Tuesday, arguing that regulators should not have rescued uninsured depositors at Silicon Valley Bank.
The Federal Deposit Insurance Corp. took control of Silicon Valley Bank last Friday after a $42 billion bank run by customers. It came as the bank’s parent company SIVB,
The Federal Reserve intervened over the weekend to prevent contagion within the banking sector, unveiling a lending facility to allow banks to meet all customer redemption requests. And U.S. financial regulators said depositors would get all their money back, even above the $250,000 guaranteed by law, implicitly making the promise for the entire banking system.
“The regulator was the definition of being asleep at the wheel,” said Griffin.
Read: Silicon Valley Bank: Here’s what happened to cause it to collapse
And: Who is Ken Griffin? 5 things to know about the Citadel CEO
Griffin added that the government did not have to step in as the U.S. economy was strong enough to ride the storm.
“It would have been a great lesson in moral hazard,” he said. “Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential.”
He added: “We’re at full employment, credit losses have been minimal, and bank balance sheets are at their strongest ever. We can address the issue of moral hazard from a position of strength.”
More: After Silicon Valley Bank collapse, startups describe ‘roller coaster of emotions’
CEO and Portfolio Manager Pershing Square Capital Management L.P. William Ackman speaks at The New York Times DealBook Conference at Jazz at Lincoln Center on November 10, 2016 in New York City.
UncreditedNot everyone agrees with Griffin’s stance on government intervention.
Last week, Pershing Square Holdings founder Bill Ackman tweeted that he couldn’t see private banks bailing out SVB and on Monday, he called for the Federal Deposit Insurance Corporation to “explicitly guarantee all deposits now.”
While Ackman said he didn’t have any exposure to SVB, Pershing Square is “100% long on North American Companies” so they are “an enormous beneficiary of the success of our country and our banking system.”
Also: Banking industry jitters could mean more pain for stocks by dragging out Fed’s battle with inflation
