Good day for the stock market. It closed very, very strong. Some of those regional bank stocks did better too. First thing I want to say this evening is that the single best thing the Biden administration can do to calm markets and prevent contagion is to stop messing around and just sell the Silicon Valley Bank. Just sell it. Let the private sector work.

That'll bring in new management, new equity capital and will take FDIC insurance costs off the hook. Right now, as the FDIC is guaranteeing both insured and uninsured deposits, this story becomes a taxpayer bailout that nobody wants.

If the deposit insurance fund is depleted, banks will pony up with bigger fees and probably charge customers, who will pay for it. It's not exactly a taxpayer tax, but it's pretty close. As soon as the bank is sold, new management will cover all these fees. That removes the story as a taxpayer bailout.

What's more, it removes the need to guarantee uninsured deposits. In effect, new ownership will restructure their portfolios of risk securities and loans. They will re-liquefy the bank's balance sheet. The Wall Street Journal reports that on Sunday, at least one offer was made by an institution, but it was declined by the FDIC. 

KEVIN O'LEARY REJECTS BIDEN ADMIN'S RESPONSE TO SVB COLLAPSE: 'WE SHOULD NOT HAVE DONE THIS' 

This sounds like the left-wing ideologues — you've got this Martin Gruenberg, who chairs the FDIC, and Rohit Chopra, who chairs the CFPB and has a seat of the FDIC board. These guys oppose bank mergers. Both of them are Joe Biden socialists.

If they'd get out of the way and let the private sector do what it does best, we'd all be better off and the whole issue of taxpayer bailouts would at least be put to rest as far as SVB is concerned. Fortunately, a second auction is being reported to be underway. Hopefully, it will be completed very quickly so that we just have these couple of days and then get on to the next issue. 

The second point I want to make is a very important announcement by Fed Chair Jay Powell, which has gone virtually unreported, that is, the Fed is launching a review of its oversight and regulation of the Silicon Valley Bank.

This could unlock one of the biggest problems with the story. Namely, SVB and the others are not a regulatory problem, it is a supervisory problem. It’s about bank examination or the lack thereof. It has nothing to do with the bipartisan regulatory relief bill back in 2018. Listen to what Kevin Hassett said about the issue.

KEVIN HASSETT: But the thing that I think is really the most obvious clue to the shamelessness of the Biden administration in this crisis is that they came out and they blamed the Dodd-Frank rollback, which was a bipartisan bill in 2018. Barney Frank was on the board of Signature Bank, and Barney Frank came out today and said there's no way that 2018 law had anything to do with this. So, Barney Frank himself is saying that the Biden administration is, you know, they're full of garbage.

Here’s the story: SVB and the others are supervised by the San Francisco Fed, First Republic also. This is run by Mary Daly. She and her group of bank examiners were completely asleep at the switch. By the way, as I said, First Republic bank also comes under Mary Daly's purview. What were they doing while these banks were taking cheap money deposits and investing in long-term duration government and mortgage bonds?

The management of duration risk by these banks was a catastrophe, and it had been going on for well over a year. So, where was Mary Daly and her team of bank examiners? Reports suggest their available-for-sale bonds, lost $1.8 billion, but far worse, their hold-to-maturity bonds on a mark-to-market basis had a $15 billion loss, which equals the whole equity position of SVB.

Of course, high inflation drove up interest rates, which crushed bond prices, which crushed the bank’s capital and ground the operation into insolvency.

At first, the deposits were plentiful and free, but then it was reported that SVB had to pay up over 5% to attract uninsured deposits. So, that's a huge asset liability mismatch, right? Treasury bonds yielding 3.5 to 4%.

Where was Mary Daly and her team at the San Francisco Fed while all this incredibly inept management was butchering the bank? Then you read about a $5 billion, one-chunk investment in some kind of climate fund that was completely untested, and Lord knows what other left-wing romping was going on in these woke banks.

By the way, San Francisco Fed head Mary Daly is considered herself to be quite a wokester. The new House Republican Financial Services Committee chair Patrick McHenry should haul Mary Daly and other regional Fed bank heads in front of his committee and find out what the heck they were doing while these banks were making bad, crazy decisions.

Finally, the root cause of this bank crisis, namely the worst inflation in 40 years, spurred by the biggest spending spree from the Biden Democrats and the money-printing accommodation by the early inflation-denier Jay Powell, continues.

Today's consumer price report shows the third straight month of higher-than-expected inflation. Last autumn, the month-over-month trends were falling. Now, since November, they are rising. The 12-month change is still 6%. 

As an aside, services excluding energy are up 7.3% year-on-year. The Cleveland Fed's median CPI is up 7.2% in the last 12 months. So, the country still has a big inflation problem, no matter what Biden keeps telling us, and the Fed's in a real pickle.

They might want to pause because of contagion worries, but they may have to raise the target by a quarter anyway because inflation continues hot. You know, folks, this whole episode of high inflation, high interest rates, bank financial worries, crazy, left-wing, woke theories infiltrating banks... none of this stuff had to happen.

Of course, I could list a zillion other problems, but I'll say just again, it's not America's decline. It's a decline of America's leadership in Washington. 

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We need to wipe the slate clean. It is time for the Biden crowd to go. I know we got to live with it for another, whatever, 18 months, but it is time. 

We need to start all over again. We need to apply principles of free market capitalism. We need new leaders, we need a new direction because this is a great country, but it needs to be freed up. That’s my riff.

This article is adapted from Larry Kudlow’s opening commentary on the March 14, 2023, edition of "Kudlow."