Should uninsured deposits get a warning label?
How do we avoid the next run on a bank?
If there has been a lesson in the recent spate of bank failures, it is that deposit flight can now happen quickly. It no longer requires a teller to hand money to customers waiting in long lines around the block. Tens of billions of dollars can vanish in hours or minutes.
That’s why guaranteeing deposits has become so crucial. The Federal Deposit Insurance Corporation explicitly insures the first $250,000 in any account, but nothing over that. The Biden administration has so far implicitly guaranteed all deposits by invoking a “systemic risk exception” — but such an implicit guarantee has not been genuinely tested against a run on multiple banks at the same time.
There are fair arguments for the F.D.I.C. to guarantee all deposits, but there may be a more strategic, surgical and free-market solution.
Consider this: What if the banking system coalesced around a separate insurance program — we’ll call it F.D.I.C.+ — for deposits above $250,000?
Banks could decide whether to use the insurance program. If they did, they could market and advertise that all deposits were insured. If they decided not to, the Federal Reserve could require them to have higher capital requirements and other restrictions to mitigate the possibility of a run.
The Consumer Financial Protection Bureau could then require banks to use the equivalent of the warning label on cigarettes to show which accounts were not insured. This warning would appear on customer apps and statements, making it clear to customers when their money was not insured and they would not be rescued.
Such restrictions would be a strong incentive for banks to participate in the F.D.I.C.+ program. Because banks would pay to insure their large deposits, the program would also provide an incentive for better business models.
Silicon Valley Bank, which failed last month, catered to the wealthy. The same is true of First Republic Bank, whose stock price dropped more than 43 percent on Friday as its fate remained uncertain. Bloomberg reported on Saturday that the F.D.I.C. has asked JPMorgan Chase and PNC to submit final bids for the ailing lender this weekend in an effort to broker an orderly sale.
Silicon Valley Bank offered tech executives good deals on mortgages and more. Many of these executives, in turn, encouraged the companies they invested in to park their money in the banks. First Republic had a similar business tactic: It distinguished itself by offering wealthy clients jumbo mortgages, and offering spectacular white glove customer service.
That meant the banks had a huge number of deposits larger than $250,000, which are not backed by the government’s deposit insurance fund. Nearly 90 percent of SVB’s roughly $88 billion was uninsured. And about two-thirds of First Republic’s deposits were uninsured at the end of last year.
That left the banks vulnerable to flights. Not only did they have large amounts of uninsured deposits, which businesses also commonly hold in their accounts, they also had a high number of clients with strong networks who were able to sense trouble and flee more quickly than a business may have. The bank run at SVB “appears to have been fueled by social media and SVB’s concentrated network of venture capital investors and technology firms,” concluded a report released by the Federal Reserve.
Maybe F.D.I.C.+ would have prevented it. — Andrew Sorkin and Lauren Hirsch
IN CASE YOU MISSED IT
Fox News ousted Tucker Carlson. The Fox Corporation board made the decision after discovering offensive private messages from Carlson that had been redacted in legal filings for Dominion Voting Systems’ defamation case against Fox. After Carlson’s firing, Russian state media reportedly offered him a job, and viewership of the conservative news channel Newsmax boomed. CNN also fired an anchor this week: Don Lemon, who made remarks in February about women and aging that were widely perceived to be sexist.
British regulators blocked Microsoft’s $69 billion Activision deal. The surprising decision reinforced the increasing assertiveness of global antitrust regulators. Microsoft’s deadline to close the acquisition is July 18. If its appeal fails, it will most likely have to walk away and pay a $3 billion breakup fee to Activision.
Price check. The latest economic indicators showed that inflation is slowing, but stubborn, as Federal Reserve officials prepare to make an interest rate decision next week. The Fed’s preferred measure of inflation climbed 4.2 percent over the year through March, down from 5.1 percent in February, while wages in March climbed 5.1 percent from a year earlier and were up 1.2 percent from December. Data released Thursday showed that gross domestic product, adjusted for inflation, increased at an annual rate of just 1.1 percent in the first quarter.
Bed, Bath & Bankruptcy. The home goods store Bed Bath & Beyond began the process of closing its 360 stores and 120 Buy Buy Baby locations after filing for Chapter 11 bankruptcy protection on Sunday. Customers had until Wednesday to use their coupons.
It’s not just tech companies talking about A.I.
The release of ChatGPT in November seems to have gotten companies talking about artificial intelligence. Mentions of “A.I.” or “artificial intelligence” on corporate calls, which have been rising over the last decade, increased 50 percent from the fourth quarter of last year to the first quarter of this one. That’s according to the market intelligence platform AlphaSense, which tracks data from more than 9,000 public companies that host calls in English.
Of the 2,007 companies that have hosted corporate calls since April 1, 334 mentioned the technology. And it’s not just tech companies.
Roger S. Penske, the chief executive of the transportation service company Penske, said the company was using artificial intelligence to answer basic customer inquiries and make sales appointments. “We’re scheduling better. We’re more efficient, and it’s enabling us to use different periods of time with our scheduling to be better with our tech,” he told investors.
James Quincey, the chief executive of Coca-Cola, told investors that “one doesn’t have to think very far to think of all the design work that goes into some of our point-of-sale material and how that can be driven through A.I. into the future.”
Arthur Sadoun, the chief executive of Publicis Groupe, the public relations and advertising conglomerate, sees A.I. speeding up the creative process, but said he thought that any loss of revenue to quicker work “will be largely compensated by the necessities to multiply the number of creative assets due to personalization at scale.”
When an anchor gets fired, this lawyer gets hired
Tucker Carlson and Don Lemon, the TV news anchors who made big news themselves this week when they were fired and taken off the air, have hired the same lawyer: Bryan Freedman. Though neither host has announced a lawsuit against his former employer, the hiring of Freedman could be a sign of legal battles to come.
The prominent Hollywood lawyer has a reputation for being an aggressive courtroom combatant. He founded his Los Angeles firm, Freedman + Taitelman, with Michael Taitelman in 1997. In its list of “power lawyers,” The Hollywood Reporter described Freedman as “an expert in crisis litigation, the type that’s heavy in late night phone calls and corporate drama.”
One of his specialties: securing big payouts for TV stars facing controversy. His clients include Chris Cuomo, the former CNN anchor, who was ousted after evidence emerged that he had advised his brother, Andrew Cuomo, during a sexual harassment scandal (he is seeking $125 million for wrongful termination); Megyn Kelly, who secured a full payout of her contract when she left NBC after wondering on the air whether dressing up in blackface for Halloween was inappropriate; Mike Richards, a former host and executive producer of “Jeopardy!,” who left after a report revealed offensive comments he had made on a podcast several years earlier; and Chris Harrison of “The Bachelor,” who stepped down after making remarks he later acknowledged were dismissive of racism.
Freedman has also represented Quentin Tarantino, Julia Roberts, Mariah Carey, Seth Rogen and Gabrielle Union.
On our radar: Giannis Antetokounmpo on ‘failure’
After the top-seeded Milwaukee Bucks suffered a season-ending loss in the N.B.A. playoffs on Wednesday, a reporter asked Giannis Antetokounmpo, the Bucks’ star player, if he considered the season “a failure.” Antetokounmpo’s passionate response has since been passed around for its wisdom about moving forward from a loss: “Do you get a promotion every year, in your job?” he asked. “No, right? So every year you work is a failure — yes or no? No. Every year you work, you work towards something, towards a goal, which is to get a promotion, to be able to take care of your family, provide a house for them, or take care of your parents. You work towards a goal — it’s not a failure. It’s steps to success.”
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