Regulators have few options at their disposal to tackle a nagging crisis of confidence in the banking industry, with the kind of measures to protect all deposits attracting a growing number of supporters on Wall Street. While universal coverage is unlikely to take hold, a program in which depositors can pay a fee to protect funds over the $250,000 FDIC insurance threshold could be more feasible. Billionaire hedge fund manager Bill Ackman made an impassioned plea for depositors’ support in a tweet on Wednesday. “Banks are a confidence game,” the CEO of $18.5 billion Pershing Square Capital Management said in a post after the Fed meeting. “At this rate, no regional bank can survive bad news or bad data as a fall in stock prices inevitably follows, both insured and uninsured deposits are withdrawn and “pursuing strategic alternatives” means the FDIC closes over the coming weekend. .” Ackman did not provide details on how he thinks the deposit guarantee program will work, but said one is necessary to restore investor confidence in regional banks. “We are running out of time to solve this problem. How many unnecessary bank failures do we need to watch before the FDIC, USTreasury and our government wake up?” He said. ‘We need a system-wide deposit guarantee system now.’ Fellow hedge fund giant Nelson Peltz, co-founder of the Trian fund manager, has also suggested requiring depositors to pay a premium on anything over the $250,000 limit. “It must stop the outflow of deposits from small regional and community banks,” he was quoted as saying by the Financial Times. “I don’t think we want all the money to just go to the big banks.” Insecurity over deposits has been at the center of the latest banking storm, which hit in full force in early March during a Silicon Valley bank race. Concerns about the bank’s liquidity caused depositors to start withdrawing funds, which then caused the bank to have to sell long-term assets at a loss to cover the deposits. SVB’s business model relied on large depositors whose money was used to back loans to highly leveraged technology companies. Concerns about the safety of these deposits led to an additional wave that eventually caused the collapse of the SVB. When SVB and then Signature Bank failed, the authorities stepped in to guarantee deposits while also maintaining that stock and bond holders would be eliminated. This has put pressure on mid-cap banks, and regional S&P ETFs are down 40% so far. Another banking options analyst Mike Mayo at Wells Fargo suggested that one alternative could be a fully collateralized deposit of up to $2 million, which he said is the average uninsured deposit per account. This would be along the lines of what the government did, albeit temporarily, after the collapse of Lehman Brothers in 2008. Other options include banning short selling, which also has precedent in the financial crisis era, and fast-tracking mergers like the one that saw JPMorgan suck The first republic. Short sellers have converged with some regional banks in the hope that even those bailed out or merged will see equity holders wiped out. Renewed jitters may cause regional banking stocks after the market close [Washington, D.C.] To reconsider priorities,” Mayo said in a note to clients. This could be security thinking, though seeing bank equity holders take a beating during the current crisis is unlikely to be enough to prompt Congress to take action, Ed Mills said, policy Washington analyst Raymond James “Unfortunately, there is a significant disconnect between the renewed pressure on regional banks and the position of the capital,” Mills said in a note. What we control now is making a fair assessment, learning the right lessons, knowing what the reforms are and implementing them,” he told reporters at a news conference. “To me, it is clear that we need to strengthen supervision and regulation of banks on this scale.”
There are limited options for fixing the banking crisis, but one is gaining support