Like the banking crisis continues to play out Both experts and entrepreneurs are discussing a possible solution that can prevent further consequences.
What happened: On Saturday, paul graham, Co-founder of tech startup accelerator Y Combinator, tweeted a Washington Post story noting that the losses they might incur would likely disappear between 77% and 91% of their total if banks were forced to issue their bonds – and liquidate loan portfolios suddenly inflow of capital. “[Large] number of banks is frighteningly fragile,” says the report.
Also read: The best financial services stocks right now
In response, Elon Musk, CEO of Tesla TSLAoffered a two-pronged solution to the upcoming crisis.
The Federal Deposit Insurance Company, or FDIC, should offer “unlimited coverage” to stop bankruns, the billionaire entrepreneur suggested. He also added that the Treasury should stop issuing “ridiculously” high-yielding bills, so having money in low-yield savings accounts makes no sense.
Why it matters: The Fed’s aggressive rate hikes have pushed up bond yields and reduced the value of government bonds held by banks. If Silicon Valley Bank SIVB announced the erosion of the value of its portfolio and the need for additional funding to make up the shortfall, nervous depositors – mostly venture capital firms and tech startups – began a bank run.
Continue reading: Elon Musk reacts as Bill Ackman flags First Republic risk spread to largest banks: ‘…amazing’
Photo: Shutterstock
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