(Bloomberg) -- Short seller Carson Block said depositors at Silicon Valley Bank and Signature Bank should have taken haircuts after federal regulators seized the troubled lenders.

“When you look at Silicon Valley Bank, to me this ended up being not just a bailout of the depositors, but it was really a bailout of venture capital funds,” Block, founder of Muddy Waters Capital, said in an interview Thursday on Bloomberg TV.

Silicon Valley Bank collapsed earlier this month when a liquidity crunch spurred a run on deposits. The bank — once known as the go-to lender for startups and VC firms — fell into receivership under the Federal Deposit Insurance Corp. The FDIC vowed to make customers whole, even if their deposits exceeded the $250,000 limit insured by the regulator.

“Somebody has to take losses at some point if we’re going to eliminate the cycle of people taking really bad risks with other people’s money and then basically the slate getting wiped clean,” Block said. This cycle “leads to worse and worse outcomes over time,” he added.

The turmoil started when crypto-friendly Silvergate Capital Corp. wound down operations earlier this month and continued to unravel when regulators shut down New York-based Signature Bank.

Read more: Four Banks Collapse and a Fifth Wobbles in 11 Days of Turmoil

--With assistance from Romaine Bostick.

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