Somewhere, Mr. Banks is flying kites. It took only 24 hours for Silicon Valley Bank to morph from healthy but underperforming to collapsed. The simple version is that SVIB experienced an old-fashioned “give me my money” run. The why is more technical, but not really much more complicated than that. The problem is that the same concentrated wealth might grow nervous about other banks in the same boat, and the Feds are spooked in what could become a spree of bank closures.

When I was in college (mid-late 80s), I interned at a bank as an operations specialist. It was a small bank, the Exeter Banking Company established in 1893 (now part of Citizens Bank). I remember sitting quietly in an executive committee meeting where the bank president (who was a loan guy) lamented that the bank was paying more for deposits than the yield long-term instruments the bank held against them, and the Fed Funds rate was garbage at the time. But risk was high, so he refused to turn on the loan spigot. The bank was trapped in an underperforming cycle. (Four years later, regulators closed five NH banks.)

Essentially, this is what killed SVIB. They tried to get out from under low-yield assets, but their investment policy was “hold to maturity,” so they weren’t required to report unrealized losses on those assets in a “mark-to-market” financial statement item. But when they sold the bonds, they were poised to take the loss all at once. Listening to their advisors (why is Goldman Sachs always involved, and comes out richer in these debacles?), SVIB arranged a capital investment—this was all planned out—but the transaction wouldn’t clear until the next day. In that 24 hours, the bank got clobbered like the fictional Fidelity Fiduciary Bank when young Michael Banks demanded his tuppence. It was a case of SVIB tripping on its own shoelaces.

But now, investors with a lot of cash are looking closely under the covers of every mid-size bank to see if there’s a time bomb waiting to cook off, and if they should pull their money. Worse, federal regulators are trigger-happy, rushing to “make whole” depositors at Signature Bank, which was closed by New York regulators on Sunday.

It’s not a good idea to push federal money to stop edgy investors from pulling their money from underperforming banks ahead of a potential run. In fact, that itself can cause a run when smaller depositors demand their cash to avoid a collapse. The small depositors trigger bigger fish to follow, and then the bank fails. Banks are not unlimited founts of money, and we’ve seen what happens when the big ones crash, the ones the Fed calls “too big to fail” get propped up while the smaller ones die.

The Fed is between a rock and a hard place of its own making (and the Biden administration’s policy) with interest rates rising more quickly than the instruments that back them. Banks have to pay competitive rates to attract deposits, and they must have deposits to maintain capital liquidity requirements in excess of their own loans. And their own loans could end up worthless if the companies and individuals who borrowed are wiped out. Now the banks are being squeezed, and the fallout will be failed banks. The Fed is looking for a way to ensure they don’t all die at once.

Biden’s oil doublespeak

President Biden is all about saying the right things to appease the greenies, but then doing all the things to appease the oilmen. He’s about to approve project Willow, which will give ConocoPhillips the right to use oil leases on Alaska’s North Slope, producing up to 180,000 barrels a day. At the same time, he’s declaring 13 million acres in the National Petroleum Reserve off-limits, essentially forever—or at least until a different president reverses his order.

ConocoPhillips is happy, but the greenies are not. The New York Times quoted one:

“It’s insulting that Biden thinks this will change our minds about the Willow project,” said Kristen Monsell, a senior attorney at the Center for Biological Diversity, an environmental group. “Protecting one area of the Arctic so you can destroy another doesn’t make sense, and it won’t help the people and wildlife who will be upended by the Willow project.”

When the whole thing goes to court (and it will), don’t be surprised to see the EPA siding with the greenies, against ConocoPhillips, which of course has a massive cash incentive to fight for its leases. Then Biden will be able to claim “he did all he could” while the oilmen haul in the cash.

This stirs up one of my pet peeves. Congress should be setting policy on North Slope oil, offshore drilling, and land use. It’s Congress’s job to do it, but they’ve long outsourced that authority to the Interior Department and BLM (not to mention the red-headed, mistreated stepchild Bureau of Indian Affairs). The president may merely use a pen and a phone to change policy regarding 28% of the real estate in America, worth somewhere north of $2 trillion, without adding in mineral rights. Congress designates land for national parks and other purposes, but the executive branch has way too much authority over land use, especially oil land.

The issue here is that decisions regarding drilling and production of oil generally span several presidential terms. Therefore the oil companies look long, while individual presidential administrations play short. ConocoPhillips will likely get its way, if not now, then in 2024. Biden will suffer one day’s news cycle of withering insults of greenies, while later playing up his bans on further oil leases in his campaign (if he runs). The whole thing is a massive waste of effort and an insult to voters that does nothing but make prices at the pump go up and put more cash into the oilmens’ (and their lawyers) pockets.