Citadel boss Ken Griffin thinks SVB's rescue package shows US capitalism 'breaking down before our eyes'

• Citadel boss Ken Griffin has said US capitalism is "breaking down before our eyes."
• "It would have been a great lesson in moral hazard" if US regulators didn't bail SVB clients out, according to him.
• "There's been a loss of financial discipline with the government bailing out depositors in full," he said.

Citadel boss Ken Griffin said America's capitalist economy is "breaking down before our eyes," citing the government move to bail out depositors who lost money in Silicon Valley Bank's collapse.

"The US is supposed to be a capitalist economy, and that's breaking down before our eyes," he told the Financial Times on Monday. "There's been a loss of financial discipline with the government bailing out depositors in full."

Griffin, who leads Miami-based hedge fund Citadel and capital-markets company Citadel Securities, said US regulators shouldn't have stepped in to rescue all depositors at SVB and Signature Bank — even those with uninsured deposits — from financial losses.

"It would have been a great lesson in moral hazard" if regulators didn't decide to relieve the banks' clients, according to him. "Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential," he said.

He thinks that bailing out depositors of these banks sets the wrong precedent, and the move was unwarranted in the current circumstances given the US economy was strong enough to withstand any fallout.

"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," said Griffin, whose flagship company posted a record $16 billion in profits last year, marking the best year for any hedge fund in history.

Griffin's also criticized regulators for overlooking red flags along the way. "The regulator was the definition of being asleep at the wheel," he said.

His comments echo a string of remarks from high-profile names on Wall Street who disagree with the government's rescue plan. "All deposits guaranteed? Big mistake. Fed and Treasury policy moving to backstop risk," billionaire 'bond king' Bill Gross said on Twitter.

But others, like billionaire investor Bill Ackman, maintain that SVB wasn't a bailout because regulators are only protecting depositors, not the management or shareholders of these banks.