Nelson Peltz, co-founder of Trian Fund Management and hedge fund manager, has proposed a solution to the issue of clients withdrawing their money from small banks in the wake of Silicon Valley Bank’s collapse. Peltz has suggested extending the deposit insurance program so that clients pay insurance premiums to the Federal Reserve System if they want their accounts to be insured beyond the government limit of $250,000. This would require clients to pay a small percentage of the deposit value towards insurance.
Peltz has voiced concern over the current situation, which has seen a significant amount of deposits moving from small banks to larger ones following SVB’s failure. Peltz believes that if his proposal is implemented, clients would have their first $250,000 insured and could choose to spread their money across different banks. However, if a client decides to leave all of their money in one bank, they would have to pay a small percentage of the deposit certificate rate as an insurance premium to the federal government. Peltz has suggested that this may result in money flowing out of the country.
Currently, the pool of insurance money in the Federal Deposit Insurance Corporation (FDIC) is created by insurance premiums paid by banks and savings associations. However, after Silicon Valley Bank’s recent failure, the US Department of the Treasury and Federal Reserve System ensured that all deposits exceeding the insurance limit of $250,000 were protected. As of the end of last year, around 89% of SVB deposits, amounting to $175 billion, were uninsured. Despite SVB’s rescue, clients remain anxious about similar creditors. First Republic Bank has also faced an outflow of deposits, leading its larger competitors to allocate a $30 billion rescue package to it last week.