(Bloomberg) — The US government’s emergency backstop of its financial system after Silicon Valley Bank’s collapse has earned praise from prominent names including Larry Summers and Bill Ackman.
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But after a frantic weekend that saw the Federal Reserve and Joe Biden’s administration take extreme measures to protect depositors at SVB and the rest of the nation’s banks, a small but vocal group are emerging as critics of the rescue package.
Ken Griffin, the billionaire founder of hedge fund Citadel, told the Financial Times the US government shouldn’t have intervened to protect all depositors at the Santa Clara-based bank.
“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” Griffin, a major Republican donor, told the FT on Monday. “There’s been a loss of financial discipline with the government bailing out depositors in full.”
Billionaire quant investor Cliff Asness tweeted on Monday that regulators have created moral hazard and “it ain’t ok.”
The rescue has “greatly reduced” the incentive for depositors to think about the risks of where they put their money, wrote Asness, co-founder of AQR Capital Management LLC and a proponent of limited government.
Carson Block, the founder of trading firm Muddy Waters Capital, said the government shouldn’t “bail out” the uninsured deposits at SVB because it rewards “mass failures” of risk management.
“Corporate depositors, in particular, should be expected to manage their counterparty risks,” Block, who often makes money when markets fall, wrote in statement dated Sunday which he tweeted. “Bailing out uninsured depositors at SVB, which are mostly corporates, further infantilizes markets by sending the message that such risk management is anachronistic.”
SVB’s seizure Friday, the biggest US bank failure since the financial crisis, was precipitated by fleeing depositors and sent shock waves across the global financial system.
Regulators took measures to shore up deposits Sunday, in conjunction with an announcement that New York’s Signature Bank failed. Both collapses followed the news last week that fellow crypto-friendly bank Silvergate Capital Corp. would wind down.
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Biden has said no losses would be borne by taxpayers and that those responsible for the banks’ collapses would be held accountable.
“Investors in the banks will not be protected,” he said. “They knowingly took a risk and when the risk didn’t pay off investors lose their money. That’s how capitalism works.”
Economist Nouriel Roubini questioned the logic of protecting depositors at Signature Bank, writing in a tweet that the move was the “mother” of all moral hazards.
Roubini, who has earned the nickname “Dr Doom” for his bearish views of the global economy, is a critic of cryptocurrencies, calling them “purely speculative asset bubbles.”
As of March 8, Signature Bank still held $16.5 billion in crypto-related deposits.
“All banks doing crypto biz are collapsing,” Roubini, who’s also CEO of Roubini Macro Associates LLC, wrote in another tweet. “Good riddance.”
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