Bank customers looking for peace of mind should be offered the option to pay a small fee to the U.S. federal government for insuring large deposits, proposed Trian Fund Management co-founder Nelson Peltz.
The large shareholder of Disney, who recently called a ceasefire in his proxy war with the Mouse House, argued such a scheme would immediately prevent the current run on regional lenders.
“You will have money flooding in here from all over the world,” Peltz said in an interview with CNBC on Monday.
“People will feel safe. You can leave your money in your bank down the block, or you can give it to Bank of America—it doesn’t make a difference.”
The recommendation comes after Silicon Valley Bank and Signature Bank collapsed this month within days of each other, marking the second and third largest U.S. lenders to fail in the country’s history.
Depositors have now been withdrawing funds in the billions from whichever bank is perceived to be on the ropes.
On Sunday it was Credit Suisse’s turn, with the Swiss government brokering a $3.2 billion takeover deal by larger cross-town rival UBS that partially relies on a taxpayer backstop.
Despite last week’s attempt to demonstrate support through a $30 billion deposit split up amongst eleven financial institutes, shares in First Republic Bank plunged to a record low on Monday.
Based in troubled tech hub Silicon Valley like SVB, First Republic is the nation’s 14th largest lender.
Support for his plan has met with ‘varying degrees of affection’
“All the money as we know is leaving all the small community banks and the regional banks and going to the three or four largest banks in America,” Peltz explained on Monday. “That is a very dangerous situation, and it’s got to be resolved.”
Some investors have argued the current troubles center on the safety of customer deposits, and are not comparable to the 2008 global financial crisis sparked by subprime mortgage-backed securities found to be worthless.
Today’s problems are therefore temporary in nature, they believe: banks are fundamentally sound, they are just not always liquid.
This differentiates it from the solvency crisis experienced 15 years ago, where no amount of short-term cash provided as loans would have fixed the underlying losses on exotic derivatives.
Since it is confidence in banks that has been shaken, Peltz argues the problem must be resolved by restoring that trust.
Rather than simply raise the federal deposit insurance guarantee funded by banks beyond the current threshold of $250,000 and have the added cost passed on to all customers, he believes those bank clients unwilling to spread out their deposits should simply pay a small, transparent fee to the federal government in exchange for peace of mind.
“Let them understand that they have a conscious decision to leave it in one place [for convenience] or move it around,” he said, “that’s up to them.”
Peltz said he ran the idea by various elected officials in Washington, as well as two CEOs of major U.S. banks, saying the idea has so far been met with “varying degrees of affection.”
