As the banking crisis continues to play out, both experts and entrepreneurs are deliberating on a potential solution that can prevent any further fallout.
What Happened: On Saturday, Paul Graham, co-founder of technology startup accelerator Y Combinator, tweeted a Washington Post story, which noted that if banks were forced to liquidate their bond and loan portfolios suddenly, the losses they may have to incur will likely erase between 77-91% of their combined capital infusion. “[Large] numbers of banks are terrifying fragile,” the report said.
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In response, Elon Musk, CEO of Tesla (NASDAQ:TSLA), offered a two-pronged solution for the crisis at hand.
The Federal Deposit Insurance Corporation, or FDIC, should offer “unlimited coverage” to stop bank runs, the billionaire entrepreneur suggested. He also added that the Treasury should stop issuing “ridiculously” high-yield bills such that it makes no sense to have money in low-interest rate savings accounts.
FDIC needs to change to unlimited coverage to stop bank runs and Treasury needs to stop issuing ridiculously high yield bills, such that it makes no sense to have money in a low interest rate bank “savings” account. Right now.
— Elon Musk (@elonmusk) March 18, 2023
Why It’s Important: The Fed’s aggressive rate hikes have pushed up bond yields, reducing the value of Treasury bonds held by banks. When Silicon Valley Bank (NASDAQ:SIVB) disclosed the erosion of its portfolio’s value and the need for additional financing to make up for the shortfall, nervous depositors — primarily venture capital firms and tech startups — began a bank run.
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