Government should insure all bank deposits – for a price, says Nelson Peltz

Hedge fund manager Nelson Peltz said Monday that the federal government should expand its guarantee to all bank deposits regardless of size in order to slow bank operations, but it should charge customers for the insurance.

Fund management co-founder Trian told CNBC that customers withdrawing money from small banks is a “dangerous situation” and that he has spoken to elected officials about expanding the deposit insurance program that currently has a maximum limit of $250,000 per account. The change will include paying insurance premiums to the Federal Reserve.

“I would put in place a plan that only applies to US banks where the Fed takes an insurance premium for any money that you leave in an authorized bank in the US over $250,000. So you’re generating income for the Fed, and in exchange for that, Peltz said on Squawk. on the Street” on CNBC “They secure the pay raise.”

Peltz’s idea follows massive deposit outflows from US regional banks in recent weeks. The failure of Silicon Valley Bank appears to have been caused by a bank scramble after clients with large accounts noticed problems with the bank’s balance sheet. Banks were taking advantage of the Fed’s lending programs to counter those outflows.

The additional insurance premium, for example, could come from interest payments on certificates of deposit on large deposits, Peltz said. He added that he believes it would be better if the fees were consciously paid by consumers rather than simply being included in interest rates by banks. There can also be limits on the amount of deposits some banks can take.

“You’ll have money pouring in here from all over the world. People will feel safe,” Peltz said.

Federal regulators stepped in and insured uninsured deposits at SVB and Signature Bank after their failure earlier this month, though federal officials said the protection does not extend to other banks. Peltz argued that this implied deposit guarantee must be formal.

“They do it anyway. Let’s get some income for them, let’s make the system easy and give people peace of mind,” Peltz said.

The hedge fund manager isn’t the only one calling for raising the insurance threshold. Gary Cohn, a former Goldman Sachs executive and adviser to the Trump administration, said on CBS:Face the nationOn Sunday, regulators should consider significantly raising the insurance cap and implementing a tiered pricing system to pay for it.

Regional bank stocks largely recovered on Monday, though First Republic was still under pressure despite taking $30 billion in deposits from other banks.

Peltz said it is important to make changes to the deposit insurance program even if the current situation stabilizes.

“Maybe the panic peak is behind us, but that doesn’t prevent the next panic,” Peltz said.