US capitalism is ‘breaking down before our eyes’, says Ken Griffin

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.

The regulator was the definition of being asleep at the wheel

“The regulator was the definition of being asleep at the wheel,” said Griffin.

The billionaire Citadel founder, whose fund this year became the most successful hedge fund firm ever, said the US economy was strong enough for the Fed not to have stepped in the way it did.

“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.

“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.”

Griffin’s stance contrasts starkly with that of Bill Ackman, another high-profile hedge fund manager, who on Monday called for the Federal Deposit Insurance Corporation to “explicitly guarantee all deposits now. Hours matter.” Ackman said on Twitter that “our economy will not function effectively without our community and regional banking system”.

He said that neither he nor his hedge fund Pershing Square had any exposure to Silicon Valley Bank, adding that his personal exposure to the venture capital industry was “less than 10 per cent of my assets”. 

Last year Griffin moved Citadel and his market-making firm Citadel Securities to Miami from Chicago after threatening to leave the city over rising crime. Griffin, who relocated to Miami with his family, has described the city as a “growing metropolis that embodies the American dream” and has said he would love to see Florida’s Republican governor Ron DeSantis run for president in 2024.

Citadel, which Griffin set up in 1990, has grown to manage $54bn in assets.