Federal bank regulators were late to the party like they always are

The weekend is coming and my best advice to anyone interested in the potential banking crisis Have to keep an eye on the news.

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we learned from one of them today federal Reserve The statistical sheet H.4.1 states that the Fed discount window has provided loans of $318 billion. That’s a huge number. Plus, another $165 billion from the Fed’s two new backstop lending facilities. We haven’t seen numbers like this since 2008. No, I don’t think it’s 2008, but giving out big discounts like this is helping a lot more banks than SVB and First Republic and Signature.

First and foremost, the biggest evil in this story is Joe Biden’s inflationary spending on social welfare programs, radical climate Green New Deal programs, infrastructure that actually went over climate-related issues. I want to quote from our friend Kim Strausel from The Wall Street Journal who will be here in a moment. This is a wonderful passage.

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“A clean energy tech craze, electrical grid modification, solar, carbon capture, battery storage, electric vehicle charging infrastructure, geothermal smart community widgets, microgrids, CO2 transport, hydro, wind, fuel cells, waste management and efficiency gains.”

One year into its inflation battle, the Fed faces an unclear future

That stuff must be worth a trillion dollars. Not to mention the $2 trillion in unnecessary, so-called COVID emergency bill in 2021 that previously triggered Bidenflation. By the way, inflation under Mr. Biden is 14% higher than in his more than two years in office.

All flatfoot were caught. Biden was in denial. Yellen was in denial. The stock and bond markets were in denial. Jay Powell was in denial. The banks were in denial, and all these denials have caught up to us. It’s a sad story and speaking of doing too little, too late, Federal Bank regulators were late to the party as usual.

As I said earlier, Mary Daly at the San Francisco Fed was more concerned about the climate than her district’s bank liquidity and solvency problems. In fact, San Francisco’s lead manager was fired. The SVB didn’t even have an official risk manager for most of last year when bond prices and the bank’s capital collapsed. Meanwhile, SVB was lending all those so-called tech startups what Ms. Strassel calls “social credits,” which are essentially subprime loans that probably had no use.

Think of Barack Obama’s Solyndra to the hundredth power. Now it turns out that First Republic has a ton of illiquid municipal bonds and equally illiquid commercial property loans in a failing market. Speaking of late to the party, the Fed for some reason didn’t use the discount rate or, for that matter, their backup lending facility sooner, and instead the FDIC took on the moral hazard business by guaranteeing uninsured loans. decided to go in.

None of this should have happened. None of these, but that’s always the case when these crises come. We don’t know yet how contagious all this will be. At the moment, the big banks are lending $30 billion of their excess reserves to the First Republic and the Fed has its own basket of instruments for control purposes.

Most of the banking system is well capitalized, despite all the missteps. So, it still doesn’t look like 2008, but it doesn’t look pretty either, and there are still a lot of risks. you know what? I still yearn for JPMorgan having a bunch of banks in his library until the system can be right-sided, or the great banker saying to President Teddy Roosevelt, “Is your man Call my man and we’ll fix it.” As John Maynard Keynes tried to teach us nearly 100 years ago, inflation The most cruel of all is the tax.

This article is excerpted from an opening comment by Larry Kudlow, edition of “Kudlow” on March 17, 2023.