Why fears of a banking crisis were inflated – Bad regulation is the real problem

Ken Fisher

a job

by Ken Fisher

May 21, 2023 | 12:53 p.m

Is there really a banking crisis?

Back in March, I told you that Silicon Valley and Signature Bank were two separate episodes —no Systematic threats.

The subsequent demise of First Republic and the decline in regional bank stocks added to fears of a collapsing domino effect.

However, these episodes and emerging data reinforce my point.

Infection is not the danger now, possible bad organization is. listen to me.

Hoopla aside, since the SVB failure, the S&P 500 is up 6.5%.

Yes, shares of regional banks fell. But the larger S&P 500 Financials is down just 1.6% since the SVB crash.

Overall bank deposits were down -2.5% – smaller bank deposits were down -4.6%. Not great, but not catastrophic either. Lending has not exploded.

The Fed’s first-quarter survey of chief loan officers showed that lending standards are slightly stricter and demand is lower — neither new nor severe.

I’ve argued that SVB and Signature failed mainly from highly focused deposit rules – the former in Venture Capital, the latter in cryptocurrency.

Few banks are concentrated with such depositors who communicate with each other.

Tightly knit communities of depositors make banks easier to run.

FRC was more or less the same, courting affluent clients who overlapped geographically and culturally with SVB – pushing niche products with uncommonly high uninsured deposits.

Depositors fearfully grabbed the savings, the stock exploded, and fearing a complete failure, the FDIC interceded, took control and brokered a near-failing, JPMorgan takeover on May 1.

However, no disaster occurred.

Why? Adjusted for inflation, these few banks weren’t huge.

Only gurgles were. Second-tier and smaller banks fail regularly — an average of 63 per year since 1975.

It often collapses in clumps, like 1989 – 1990 912 or 2007 – 2008 305. The only years that don’t have any? 2021 and 2022!

But we are now noticing. Displacing these few leads to confusing the exceptions with the rule.

The overall system is close to its best in 10, 30 or 50 years based on loan-to-deposit ratios and cash-to-total assets.

There are more than 4,200 US banks. We want a vibrant, vibrant capital economy – including innovative banks.

With that comes some failure always. We must want it. Regulators are trying to limit the risks. They can’t completely. Nor should.

When banks need emergency liquidity, they first borrow from the Federal Reserve Regional District.

There are 12 nationally. Those regional loans are reported weekly.

Only the New York region (the signature’s home) and the San Francisco region (SVB and FRC) saw an increase.

10 others? Nada! In any systemic crisis, this borrowing would be omnipresent.

You are saying that the regulators should “do something” before all this? truly? Be careful what you wish for.

Across government, there is virtually no in-bank, real-world, or hands-on work experience.

Treasury Secretary Yellen was just an academic economist who, ironically, ran the now-mutilated San Francisco Federal District where all the SVB/FRC problems arose — before he became Fed chair.

Promote incompetence! Current Federal Reserve Chairman Jerome Powell is a born-and-raised D.C. lawyer, politician, swamp creature with zero real banking experience. Pretty much all of them are.

Congress? worst! Lots of smart lawyers on the relevant committees. I know and love many of them, but I can count on one finger of any senior person in the management of any bank ever – MP. French Hill (R-Ark.).

But they are dying to “do something”.

Anything they do is probably worse than nothing – because they know nothing. Revised banking rules routinely backfire.

Calls for smart pants “fixes” to this non-crisis situation are why the SLOOS survey shows many banks are now tightening credit – citing “concerns about … future legislative changes”.

Congressional inaction on banking outweighs reaction.

Less is more. Better not to do anything. Republicans should be getting this cold, but apparently they don’t.

Until now, most of the talk about regulation is abstract politics.

If that continues, the banks’ concerns will fade faster than the end of this column.