“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’s Ken Griffin, founder of hedge-fund titan Citadel, in an interview with the Financial Times, arguing that regulators should not have rescued uninsured depositors at Silicon Valley Bank.
Read: Silicon Valley Bank: Here’s what happened to cause it to collapse
The Federal Deposit Insurance Corp. took control of Silicon Valley Bank last Friday after a $42 billion bank run. It came as the bank’s parent company, SVB Financial Group SIVB, disclosed large losses from securities sales and then failed to raise new capital through a planned stock offering.
The Federal Reserve intervened over the weekend to prevent contagion in 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 of 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.
Don’t miss: Who is Ken Griffin? 5 things to know about the Citadel CEO.
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Griffin added that the government did not have to step in as the U.S. economy was strong enough to ride out 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.”
See: After Silicon Valley Bank collapse, startups describe ‘roller coaster of emotions’
Bill Ackman speaks at the New York Times DealBook Conference at Lincoln Center in 2016.
Uncredited
Not 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 called for the FDIC 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” and so is “an enormous beneficiary of the success of our country and our banking system.”
Read on: Banking-industry jitters could mean more pain for stocks by dragging out Fed’s battle with inflation
Source: https://www.marketwatch.com/story/ken-griffin-feds-intervention-in-svb-collapse-shows-u-s-capitalism-is-breaking-down-before-our-eyes-b1a0619b?siteid=yhoof2&yptr=yahoo