Nelson Peltz says the government should insure all bank deposits—for a price

The federal government should expand the guarantee for all bank deposits regardless of size to slow down the bank’s performance, but should charge customers for that insurance, hedge fund manager Nelson Peltz said on Friday.

The founding partner of Trian Fund Management told CNBC that customers withdrawing money from small banks is a “dangerous situation” and that he has been talking to elected officials about expanding the deposit insurance program that is currently capped at $250,000 per account. These changes will include paying insurance premiums to the Federal Reserve.

“I will create a plan that only applies to US banks because the Fed gets insurance premiums for money left in US accredited banks over $250,000. So you create income for the Fed, and in exchange for that. they insure the overage, ” Peltz said on CNBC’s “Squawk on the Street.”

Peltz’s idea comes after a large flow of deposits from US regional banks in recent weeks. The failure of Silicon Valley Bank appears to have been caused by the bank opening up after customers with large accounts noticed problems with the bank’s balance sheet. Banks have tapped the Fed’s crisis lending program to handle those outflows.

Additional insurance premiums will, for example, come out of CD interest payments on large deposits, Peltz said. He added that he thought it would be better if the cost was paid consciously by the consumer rather than just built into the interest rate by the bank. There may be limits on the amount of deposits that certain banks can accept.

“You will have money flowing here from all over the world. People will feel safe,” Peltz said.

Federal regulators stepped in to protect uninsured deposits at SVB and Signature Bank after they failed earlier this month, although federal officials said the protections did not extend to other banks. Peltz said that this implicit guarantee for deposits should be formalized.

“They do it anyway. Let’s make some income for them, so the system is smoothed out and give people peace of mind,” said Peltz.

Hedge fund managers aren’t the only ones calling for insurance thresholds to be raised. Former Goldman Sachs executive and Trump administration adviser Gary Cohn said on CBS’ “Face the Nation” on Sunday that regulators should consider dramatically raising insurance coverage and implementing a tiered pricing system for payments.

Regional bank stocks largely rebounded on Monday The first republic is still under pressure despite receiving $30 billion in deposits from other banks.

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

“The peak of panic may be behind us, but that doesn’t stop the next one from coming,” Peltz said.