(Protos) - Hedge fund boss Ken Griffin says the US government should have allowed Silicon Valley Bank to go under as a “lesson in moral hazard,” rather than stepping in with a rescue package, reports the Financial Times (FT).
The California-based bank was shuttered late last week when customers withdraw more than $40 billion — over a quarter of its total deposits — in a single day.
But instead of allowing the lender to collapse, regulators came through with a bumper package that they claimed would cover all depositors in full.
However, while this sounds like good news — at least for the bank’s customers — billionaire Citadel founder Griffin believes it to be a sign that US capitalism is failing.
“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” he told FT.
“There’s been a loss of financial discipline with the government bailing out depositors in full.”
According to Griffin, the bank’s demise was caused by the lax approach from regulators who critics have claimed missed numerous warning signs that it was in trouble.
As such, he says, there’s a chance that stepping in to save it could set a bad precedent.
“The regulator was the definition of being asleep at the wheel,” said Griffin (via FT).
“It would have been a great lesson in moral hazard. Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential.”
The FDIC needs to guarantee deposits “now”
As reported by FT, not everybody in Griffin’s position feels the same.
Pershing Square Capital Management CEO Bill Ackman called for the Federal Deposit Insurance Corporation to “explicitly guarantee all deposits now.”
Ackman also said via Twitter that “our economy will not function effectively without our community and regional banking system.”
By Ken Griffin
March 14, 2023
