As a fallout from Silicon Valley Bank‘s failure to continue to open, the Federal Reserve should slow down before “many more such” break, Altimeter Capital Brad Gerstner told CNBC Halftime Report on Friday.
Gerstner said he was not “pointing the finger” at Fed Chairman Jerome Powell. But Gerstner said there would be “a lot of questions” about the Fed’s response to inflation, given the collapse of SVB and the subsequent selloff of regional banks.
“Our chief regulator [Powell] told us on Tuesday that everything was fine,” said Gerstner. “On Thursday, it was very clear that our entire regional banking system was in trouble.”
This leaves room for “a lot of investigation and a lot of questions to be asked of everyone involved,” he said.
Three important banks with heavy exposure to startups or crypto collapsed or closed in the past week.
On Wednesday, the focus is crypto Silvergate Bank said it will wind down and liquidate. The next day, SVB shares cratered after the bank said it was selling securities at a loss and trying to raise cash, leading many tech-backed clients to withdraw funds. On Friday, SVB was closed by the regulator.
Silvergate, SVB, and Signature Bank, which was closed by regulators on Sunday, are all medium-sized banks with a focus on speculative or crypto technology investments. Their profile is very different from most regional banks, which focus on small businesses or individual consumers.
Gerstner said the risk to the regional banking sector goes beyond just SVB or “young startup founders,” but it is important to note the “main source” of funding for the market that disappeared “virtually overnight.”
“We are on the brink of one of the most interesting periods of technological innovation,” Gerstner told CNBC’s Scott Wapner, before comparing the current period to the financial crisis of 2008. “Here again, we have a major reset happening in the world.”
Gerstner said the Fed’s efforts to curb inflation by quickly raising rates have left banks in disarray.
“This is not a startup ecosystem issue,” the investor said. “This is a national banking problem.”
When generating the Treasury 10 years fell nearly 20 basis points there to 3.50%, it has climbed above 4% earlier this month.
“It’s the market that’s telling the Fed that ‘you slow down, otherwise more stuff will break.'” Gerstner said. “We’re going to have a big recession, and bigger problems.”