Nelson Peltz warns more regional banks will fail unless deposit rules change - FT

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Billionaire activist investor Nelson Peltz warned that more regional banks may fail unless regulators change the rules for depositors.

Peltz, co-founder and CEO of Trian Fund Management, renewed a suggestion for depositors with more than $250K in a U.S. bank to pay a small insurance premium to the Federal Deposit Insurance Corp., the billionaire told the Financial Times in an interview.

"it should stop the deposit outflow from the small and regional and community banks," Peltz told the newspaper. "I don't think we want all of the funds just going to major banks."

Peltz comments come after First Republic Bank was seized by the FDIC on Monday and most of its assets were sold to JPMorgan Chase. PacWest (PACW) shares plunged 45% on Thursday after the bank confirmed it was reviewing strategic alternatives. Regional bank Western Alliance (WAL) dropped 16% in sympathy.

The iShares U.S. Regional Banks ETF (IAT) fell 3.3% in trading on Thursday and the SPDR S&P Regional Banking ETF (KRE) dropped 5.3%.

More on the Bank Crisis

• Cathie Wood thinks regional bank fallout is accelerating
• 3 Bank Failures Bigger Than 2008, 3 Bank Stocks To Sell Stand Out With Quant
• Western Alliance deposits stabilize amid banking turmoil
• PacWest Leads Fresh Regional Bank Rout: What's Going On?

Comments

[BizFresh]

Won't stop the bleeding. Only lower rates will do that and the Fed in all its wisdom just raised...again...for the 10th time w/i a year...yesterday

[Winnertakesall]

Boy did Treasury and the FED screw up....

[Finding Your Retirement]

@Winnertakesall their screw ups are transitory. Just like your bank

[r cohn]

Defacto increasing the 250,000 limit. This requires Congressional approval
Won’t happen

[OneMoreCup]

such a stupid idea....reality: US cannot afford any kind of price discovery post 2008.....instead, layer upon layer of expanding debt bubble must be created to cover over previous ruptured bubble. When 3% is unsustainable and puts a dagger thru heart of the entire financial system, that pretty much tells you how fragile everything truly is. Like bricks/mortar, many smaller unsophisticated banks have reached the end of line given how technology has evolved since 2000. Time to sell their banks at a reasonable price and move along, cat is out of the bag....In the end, US might end up w/ a dozen or less major banks and very few niche players that would not resemble a traditional bank. Re Fed Reserve, when all said and done, maybe their structure also must change w/ the times.......they don't work very good anymore since everything moves so much faster now....

[jz10]

@OneMoreCup BOJ is the smartest central bank in the G7 at this point. They don't care if JPY tanks, they know full well that hiking rates is suicide.

Only way out is inflate away the debt. We are making the same mistake as the BOE that tried to repeg the GBP to gold after WWI. Debt become unpayable if you try to maintain the value of currency, the result will be debt deflation and financial crisis.

[dynx]

@jz10 the problem with the “inflate away the debt” solution is that spending will just increase even faster. You can’t inflate it away if growth in spending outstrips inflation. The clowns in congress, and the clowns we’ve had in the white house need to go.

[TunnelUnderTokyo]

So, not only the banks are not paying any interest, they want ME to pay to give my money to the banks? This is a laughable proposition, everyone will simply switch to money market with non-banks, and this will kill the banks entirely.

[spinrbait]

@TunnelUnderTokyo I just took money out of checking today and bought 34 day treasury bill paying 5.5%. I had already bought a 60 day paying 4.8% about 30 days ago. It’s very easy at Td ameritrade. Probably all self investing brokers.

[Real007]

You can't go "wild west" (largely unregulated) and not expect trouble in the future:

www.cnbc.com/...

[TunnelUnderTokyo]

@Real007 Banks are the most regulated corporations.

[Real007]

@TunnelUnderTokyo Au contraire -- the ones have the biggest problems today are the very ones Trump's massively reduced banking rules (signed into law in 2018) largely unregulated.

www.cnbc.com/...

[TunnelUnderTokyo]

@Real007 The biggest problems today have little to do with regulation, and everything to do with the Fed poorly transmitting their commitments. The Fed said not long ago they'll never raise rates (remember "I'm not even thinking about thinking raising rates"), then they said inflation is transitory, nothing to worry about. All this gave the commercial banks the green light to go long duration, and refinance a lot of mortgages and CRE at very low rates. Then the Fed did a complete 180 and raised rates by a factor of 20! Do you not see how the Fed made all this?

[WYCO Researcher]

He is also the same guy who put GE into financial trouble years ago because he kept pushing GE to repurchase stock instead of paying down debt.

[Go and do likewise]

"I don't think we want all of the funds just going to major banks."

Agree. On the other hand, could sure see the benefits of a reduction in the number of banks in the US. There are close to 5000 in the US. Would rather see some of the smaller banks get bigger.

[Go and do likewise]

"Peltz, co-founder and CEO of Trian Fund Management, renewed a suggestion for depositors with more than $250K in a U.S. bank to pay a small insurance premium to the Federal Deposit Insurance Corp"

Exactly what Meb Faber was saying a month ago.

[mdjr7]

Remember, failure is part of capitalism if you believe in capitalism. We have too many banks and those that make ill-fated decisions have consequences.
Citizens were screaming when Volcker raised rates in the early 1980s in order to tame inflation. Now he's a hero. The Fed is independent for a reason. Inflation is potentially a worse problem than poorly managed banks going under. The depositors can just go elsewhere.

[WD216]

@mdjr7 You do know a massive run on the regionals can cause the economy to collapse right?

[jz10]

@WD216 He is a liquidationist. Andrew Mellon's advice to Hoover: "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate". Result was the Great Depression.

[User 58475577]

@mdjr7 I'd argue that the Fed is causing / contributing to this mess with the $250K rule. The very existence of that arbitrary threshold is causing people to flee to other banks deemed to be safe havens.

[2021investor]

Americans thought their bull market would continue forever and ever and ever mot realizing the whole thing was pumped by the Fed printing money. We’re only in the second year of famine, another 5 to go. Buckle up.

[ortananzo]

Nelson Peltz has been peddling this idea of paying for greater insurance in various interviews. Everyone (including you) pay for FDIC insurance through the cost of products/services you get from a bank -- credit cards, checking account costs (overdraft fees, monthly costs), etc.

Banks often have a multi-product relationship with their customers and breaking out an extra fee for FDIC costs does not really make sense. If you have a credit card and get extra benefits like miles, the credit card from the bank isn't breaking out the costs of giving you the miles per purchase. It's a benefit buried in the overall cost of the relationship to the bank.

[notre]

This is the doing of the Fed by raising rates so rapidly. They didn’t even wait to see affects but kept raising rates.
They had only an inflation problem now they have created a crisis.

[userwcSX]

"Those EMTs... first the poor victim only had a heart attack, now he has to deal with broken ribs from CPR, too"

You have it reversed. We had an inflation *crisis* that has caused an *problem* in regional banks. Depositors have been fine. Banks exist as institutions to make a cut on the return on deposits. They don't have to exist and they are fungible. When they manage their risk poorly, they go out of business, like several have. They made stupid business decisions on asset duration, and the US economy will be better off with people who know how to run banks better than the ones that have failed.

[appledoc]

@userwcSX Agree. Powell says the Fed is going to keep raising rates until inflation is tamed, and these clown banks didn’t manage their money accordingly. These banks deserve 100% of the blame here.

[notre]

@userwcSX Don’t Agree with you.
Causes of inflation were Covid shutdowns, then and now supply constraints.
Then you have mishandling of Ukraine crisis. Then you have Opec+ and oil prices.
Then you have corporate gouging by adding more fire. Grocery chains are making higher profits.
Banks lend depositor money long term they are not pawn shops.
Then the US doesn’t even have manufacturing in US.
You can add climate change to the affects on crops from droughts to floods. And the Fed had zero control on all of them imo.
The rates were raised too fast from .25 to 5.% which equates to 20 times.
They didn’t even pause to wait for the affects.

[M Cuturic]

I agree with him. Very easy and simple solution. Let's hope Fed member Barr is reading this as he is in charge of getting this stuff fixed so it doesnt happen again.

[Finding Your Retirement]

@M Cuturic actually a horrible solution. People with large sum of money or investments would instead of use one bank divide it among a bunch of different one. Imagine the bank rush by millionaires. If you have a 1 million 401k account with vanguard you would have to transfer 250k to three other banks to protect your assets

in the old days, banks would take out insurance on you. Now you have to take insurance on them