Billionaire Citadel Founder Ken Griffin Says Biden Shouldn’t Bail Out SVB Depositors
The billionaire founder of the Citadel hedge fund, Ken Griffin, has argued that the Biden administration should not have guaranteed customer deposits at the failed Silicon Valley Bank and Signature Bank.
“There has been a loss of financial discipline with the government bailing out depositors in full,” Griffin told the financial times in an interview on Monday, before Citadel said on Tuesday that it had bought a 5.3% stake in Western Alliance Bancorporation.
Over the weekend, the Federal Reserve, Treasury Department and FDIC announced a plan to guarantee deposits at failed SVBs and Signatures, insisting the move was not a bailout for bank bondholders and shareholders.
The backstop was designed to prevent panics and bank runs from spreading to other institutions, but Griffin argued that letting the bank’s customers absorb the losses would have been “a huge lesson in moral hazard.”
‘Moral hazard’ refers to the removal of the incentive for individuals to protect themselves against financial risks, through the provision of backups such as bailouts or insurance.
The billionaire founder of the Citadel hedge fund, Ken Griffin, has argued that the Biden administration should not have guaranteed customer deposits at failing banks.
Meanwhile, Griffin’s hedge fund, Citadel, said Tuesday it had bought a 5.3% stake in Western Alliance Bancorporation.
“America is supposed to be a capitalist economy, and that’s collapsing right before our eyes,” Griffin said.
“Losses for depositors would have been irrelevant and would have made it clear that risk management is essential,” he argued.
‘We are at full employment, credit losses have been minimal and bank balance sheets are at their best. We can approach the problem of moral hazard from a position of strength.’
A senior Treasury official said the FDIC will use funds from the Deposit Insurance Fund to ensure that depositors at failed banks recover and that DIF bears the risk, not the taxpayer.
“The situation is not what it was in 2008,” the official said, referring to the bank bailouts of the Great Recession. ‘Many reforms have been implemented and we are trying to help institutional depositors. The bank’s capital and bondholders are being wiped out. They assumed a risk, as owners of these securities; will bear the losses.
Billionaire hedge fund manager Bill Ackman took the position opposing Griffin, arguing that a bailout for depositors saved the US economy from ruin.
Ackman wrote on Twitter that had authorities not intervened, “we would have had a 1930s bank run continuing into the early hours of Monday, causing enormous economic damage and hardship for millions.”
“More banks are likely to fail despite the intervention, but we now have a clear roadmap for how the government will run them.”
Billionaire hedge fund manager Bill Ackman took the position opposing Griffin, arguing that a bailout for depositors saved the US economy from ruin.
A Western Alliance bank sign on the floor of the New York Stock Exchange on Tuesday.
Western Alliance’s share price, which had fallen on Monday, shot higher on Tuesday, rising as much as 43 percent shortly after the opening of trading.
Because only the first $250,000 of every deposit at a US bank is FDIC insured, SVB’s collapse last week raised concerns that its small business clients would not be able to pay employees.
About 89% of about $200 billion in deposits held by SVB at the end of 2022 were uninsured, according to the FDIC. Regulators have now eliminated that risk by guaranteeing even uninsured deposits.
Meanwhile, Griffin’s hedge fund Citadel said on Tuesday it had bought a 5.3% stake in Western Alliance Bancorporation, sending a strong signal of confidence as the company was dragged down by growing fears of a broader financial crisis after two other banks were seized.
Western Alliance’s share price, which had fallen on Monday, shot higher on Tuesday, rising as much as 43 percent shortly after the opening of trading.
Citadel made $16 billion in profit for investors last year and its operations are closely watched by markets for signs of trends. Last year’s returns made Citadel the most successful hedge fund in history.
A Citadel spokesman declined to comment beyond the regulatory filing detailing the investment.
Western Alliance was one of several banks caught in a crippling sell-off since last week when regulators shuttered start-up-focused bank SVB Financial Group, sparking concerns of contagion and spreading through financial markets.
Signature Bank was also shut down by regulators.
Earlier on Tuesday, CNBC reported that Ron Baron said he “modestly increased” his position in broker Charles Schwab to take advantage of a double-digit sell-off.