WAILIN WONG, HOST:
Hey, everyone. Wailin Wong here. We are working hard on an upcoming series about the business of social media influencers. Before that rolls out, we want to hear your questions about this relatively new profession, and we'll address as many as we can in our final episode of the series. You can email us at indicator@npr.org. Again, that's indicator@npr.org. We cannot wait to share this with you. Now enjoy the show.
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SYLVIE DOUGLIS, BYLINE: NPR.
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DARIAN WOODS, HOST:
This is THE INDICATOR FROM PLANET MONEY. I'm Darian Woods.
WONG: I'm Wailin Wong. And this is Indicators of the Week.
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WOODS: That's right. And today on the show, we've got our Planet Money colleague Erika Beras. Welcome to the show.
WONG: Hey, Erika.
ERIKA BERAS, BYLINE: Hi. Thanks for having me. Hello, hello.
WOODS: So good to have you.
WONG: Today on the show, we've got crypto giant Binance's legal troubles, the multibillion-dollar hole in bank deposit insurance, and an Italy-sized oil drilling zone in the Gulf of Mexico.
WOODS: And we'll have all of that after the break.
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WONG: Indicators of the Week. First up, Darian Woods. What is your indicator?
WOODS: So my indicator is 16%, which is the share of American customers that the cryptocurrency exchange Binance had in 2020. And that 16% is a problem for the company because this week, top U.S. regulators charged it with breaking the law because of what Binance allowed its American customers to do.
BERAS: OK, good. I saw these headlines. I need to know what's going on. What's the deal here?
WOODS: So Binance is the top crypto exchange in the world. And along with matching buyers and sellers of cryptocurrencies and giving them a place to store them, it also offers customers cryptocurrency derivatives. And a derivative is this umbrella term that just means that it's a financial deal where the value of the contract is derived from something else. Like, you might have an airline that might buy a contract from a finance company that would allow them to buy fuel at, say, $80 even if the market price goes above $80. So this would be kind of insurance for high oil prices. And the value of that contract is derived from the price of oil. And derivatives can also be other things. They can be all sorts.
WONG: I have to say, I really appreciate that succinct explanation 'cause I know that derivatives make the world go round, but they're - I feel like they're so hard to explain. But it does make total sense - right? - because businesses have to manage their risks and make sure they're not losing their shirts, right?
WOODS: Yeah, it helps businesses manage risks. But the way you often see it in crypto, like in Binance - you have customers making these contracts to add a ton of leverage to their crypto trades. And that means they can gain a lot more, or they can lose a lot more. So derivatives can be risky. And that's part of the reason why the CFTC, or the Commodity Futures Trading Commission, keeps a close eye on them. Anyone who wants to set up an exchange for derivatives needs to register with the CFTC. Binance didn't do that. They just created a separate website for Americans without derivatives. And then, on their website, they explained how people could use VPNs to access the global website with full access.
BERAS: Oh, that seems, like, troublesome?
WONG: Why do people insist on putting things like this in writing? It should be like, if you want to figure out how to do derivatives, just call us.
WOODS: Yeah. Yeah, yeah.
WONG: Then, you don't have anything in writing.
WOODS: Well, according to the lawsuit, the executives have been using the Signal messaging app with its autodelete function, which, I'm sure, has some valid reasons for it. But in any case, Binance CEO Changpeng Zhao put out a statement saying that these charges were unexpected and disappointing and that the company doesn't agree with the CFTC's account of the facts. But in any case, this action is sending shock waves through the crypto world, and it's sending a signal that maybe putting in cute workarounds for American customers to trade crypto derivatives won't be tolerated anymore.
BERAS: So speaking of things that have been sending shock waves through the world, Wailin, what is your indicator of the week?
WONG: My indicator is $22.5 billion. That is the estimated cost of guaranteeing all of the depositors of Silicon Valley Bank and Signature Bank. The customers of these defunct banks are going to be made whole, and, you know, this money has to come from somewhere.
BERAS: From the magical money tree, maybe?
WONG: Yeah, I wish. But unfortunately, as far as I know, the FDIC, aka the Federal Deposit Insurance Corporation, does not have a magical money tree. What it does have is something called the Deposit Insurance Fund. It's a pot of money that banks have to pay into every quarter like a rainy day fund. And then, the amount that each bank pays depends on things like how big they are and how well they score on different measures of financial health. A fun fact - these ratings are called CAMELS.
WOODS: OK, camels also store things for, you know, droughts, I guess.
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WONG: Exactly. It's so funny. It's like the two-hump system versus - no, that's not how they do it. But getting back to the Deposit Insurance Fund in my indicator - making the SVB and Signature Bank depositors whole is going to blow a 20-plus-billion-dollar hole in this fund.
WOODS: Whoo (ph).
WONG: And the FDIC says it's going to make a special assessment to make up for that - basically, ask banks to make an extra payment. As you can imagine, this plan is stirring up a lot of feelings about how this financial burden will be shared. Bloomberg reported this week that the FDIC might have big banks take on more of this responsibility.
BERAS: Right, 'cause this is going to take some of the pressure off of, like, you know, smaller banks that have been sort of feeling this.
WONG: Exactly. And this came up during the Senate hearings about SVB this week. In particular, Wyoming Senator Cynthia Lummis asked FDIC Chairman Martin Gruenberg about the fate of community banks.
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CYNTHIA LUMMIS: So are you saying that you're able to exempt Wyoming's community banks from paying for this?
MARTIN GRUENBERG: I'm suggesting we have some discretion there, and we're going to consider that issue carefully.
LUMMIS: Will you exempt community banks from having to pay for this?
GRUENBERG: That's a judgment our board is going to have to make, and...
WONG: The FDIC says it's going to get input from the industry. I'm sure Wyoming Senator Cynthia Lummis will have some input. And they'll have a proposal ready in May. And in the meantime, it honestly looks like a lot of these big actions from federal regulators have calmed the markets. You don't see a lot of jitters.
WOODS: In these times, I will take a calm market. And now we have our third indicator. Erika Beras, what is it?
BERAS: My indicator is 73.3 million, and that is the number of acres in the Gulf of Mexico that the U.S. plans to auction off. Any guesses for what?
WOODS: I mean, what could you use 73 million acres for? I mean, maybe a gigantic aquatic park or a refuge for manatees.
BERAS: (Laughter) Aw, that would be nice.
WONG: Paddle boating or maybe big boats that look like swans. I like those boats that look like swans.
BERAS: I would stay at a boat that looks like a swan. But, no, this is to drill for oil.
WONG: Well, I guess it's 2023. Why not double down on fossil fuels?
BERAS: Yep, 73.3 million acres is the size of more than 676 million basketball courts. Or imagine that the entire country of Italy is one big basketball court.
WOODS: Got it. A giant basketball court in the Gulf of Mexico drilling oil.
BERAS: Yes.
WOODS: Got it.
WONG: That's shaped like a boot.
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BERAS: Shaped like a high-heeled boot, yep. This week, the Bureau of Ocean Energy Management auctioned off just a fraction of that acreage. This is a swath that straddles Texas, Louisiana, Mississippi, Alabama. A bunch of companies submitted bids. The highest one came from Chevron for nearly $16 million. An official at the BOEM - that's the Bureau of Ocean Energy Management - did tell me that the highest bid doesn't necessarily mean that that's who gets the lease. And to be clear, we're not talking about a huge boost on domestic production. It'd be a small increase depending on if there is discovery of oil or natural gas. And that's for the whole, you know, like, Italy-sized drilling site.
WONG: I'm guessing environmental groups feel like even a small amount of new oil production is too much.
BERAS: Oh, yeah. And, you know, environmental groups are against this because, remember, there is this whole, like, climate catastrophe that we're facing. We don't want the world to overheat. We're supposed to be phasing out fossil fuels. So this is not a good look for President Biden. He literally campaigned on not doing this kind of thing. He had promised to halt all drilling on federal lands and waters.
WONG: Sounds like the administration's energy policy is kind of taking a different tack.
BERAS: Yeah, and if you look at our energy consumption, only a small portion is actually coming from renewable energy right now, just 12.4%. So this new plan isn't likely to move the needle on that.
WOODS: Well, very good. Thank you so much, Erika, for joining Indicators of the Week.
BERAS: Sure. Thanks for having me.
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WOODS: This episode was produced by Corey Bridges with engineering by Andrew Drewenskus (ph). It was fact-checked by Sierra Juarez. Viet Le's our senior producer, and Kate Concannon edits the show. THE INDICATOR is a production of NPR.
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