Ken Griffin, founder of Citadel hedge fund, says the US central bank’s rescue package for Silicon Valley Bank shows that American capitalism is “breaking down before our eyes”.
Griffin told the Financial Times that US taxpayers should not have to bail out institutional investors, following the decision by the US Federal Reserve to intervene to prevent contagion throughout the US banking sector following the collapse of Santa Clara-based SVB.
“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” he said in an interview. “There’s been a loss of financial discipline with the government bailing out depositors in full.”
SVB was shut down by US regulators on Friday after customers raced to withdraw $42bn — a quarter of its total deposits — in one day and a failed effort to raise new capital called into question the future of the tech-focused lender.
On Sunday, the Fed unveiled a lending facility so that “banks have the ability to meet the needs of all their depositors”. Those at SVB and Signature Bank would be protected from loss, even if their deposits exceeded the normal $250,000 insurance limit, said officials.
Critics of the Fed’s move have pointed to the risk of moral hazard that comes from making all depositors whole on the money they have with SVB, while regulators face questions over missed warning signs.