What Will A Banking Crisis Do To Miles And Points?

Vladimir Lenin once said something to the effect of, “There are decades where nothing happens; and there are weeks where decades happen.”

The overall perception of the U.S. and European economies seem to have undertaken a massive vibe shift over the past week since the run on Silicon Valley Bank began, and now that the largest shareholder in Debit Credit Suisse says no, not going to inject any more money.

It’s not clear that markets have figured out what it means yet, though the broad expectation of some form of soft economic landing seems to be dissipating. (Larry Summers made the point two years ago that the Federal Reserve has never managed such a thing before.)

When SVB failed I immediately thought about the points and miles fallout because that’s the piece of the world I can speak to most confidently. We saw a brief interruption in Plastiq’s bill pay service (many people use them to charge payments like mortgage and car to their credit cards for a fee), and Brex make a huge no-notice devaluation to their airline points transfers.

And not for nothing, but Federal Reserve stress tests of banks really didn’t consider the scenario of rising interests last year, while rates were rising?

So now as we evaluate whether the Fed’s implicit unlimited deposit insurance backstop and commitment to expand its balance sheet lending to banks at par for government securities that are worth less than that can forestall a banking crisis, that could spill over into the real economy, I have to again wonder what this all means for miles and points.

Now, this is early and speculative. And so far as the Fed has raised rates, I’ve been wrong.

  • I thought that banks would have tightened acquisitions with rising interest rates. Money is more expensive!

  • The net present value of a new customer is lower with a higher discount rate, so it makes sense to spend less to acquire that customer!

However, here are some thoughts on what to expect.

  • The issuers of the big travel cards are too big to fail. The big co-brands have all become such expensive deals that only the biggest banks could swallow them. So your airline credit card isn’t going to disappear. And the big banks are also the only ones that have been able to afford to stand up their own rich transferable points programs which can outcompete airline cards.

  • The programs themselves could be more vulnerable? American and United have stacked themselves up with significant liabilities coming out of the pandemic, and there’s only so much borrowing to do against loyalty programs. While they’re all paying down debt, they’ve only just begun. A major recession coming so soon after Covid could pose real problems.

  • In the short term miles could become more valuable if there’s a recession and plenty of empty seats it should become less costly to book those seats using miles, although for U.S. airlines that could be a somewhat short-lived opportunity. They have become faster at pulling down capacity they don’t expect to sell (after the 737 MAX grounding and then Covid) so maybe the effect won’t be as great as in the past, though hopefully a bit more durable for award space on foreign carriers.

  • New cards could become more difficult to get approvals on as banks tightening up lending in the event of recession (repayment risk, and bad loans aren’t good for the balance sheet). There’s also likely to be more regulatory scrutiny that follows an implicit guarantee of all bank deposits.

In the meantime you can get both your authentic and humorous knockoff SVB swag on eBay.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. My credit score of 690 isn’t getting approved for travel cards right now… speaks to how I’m starting a blog. Working on the income from the blog and blessing other blogs along the way. This blog is promising, and maybe one day I’ll sign up for a credit card.

  2. Gary, your remark about the Fed and stress tests is off the mark in regards to the failed banks. SVB successfully led a lobbying effort which, in 2018 got the Congress to pass and, Pres. Trump to sign, legislation which raised the bank size at which stress tests were to be conducted. I assume that it’s not coincidental that SVB’s deposits topped out at a level just below that which would have required stress test. It’s a legitimate question as why the Fed didn’t recognize the extraordinary asset/liability mismatch at SVB but the Fed wasn’t permitted to stress test the bank for the last five years.

  3. @Jerry 329 – point is that the stress tests weren’t looking for the obvious problems at SVB- and potentially elsewhwere – *anyway*. The stress tests aren’t testing for the current scenario, and that’s not a point about SVB but much broader.

  4. How things will shake out, IMHO

    Banks will grab and hold on to lucrative clients offering strong retention bonuses and targeted offers
    Banks will cut credit lines that are deemed excessive and mostly unused. This will hurt people’s credit score by dropping utilization rate
    Points and rewards will be same old same old. I see little impact here

  5. Well connected (to the Dems) and woke banks on each coast, like SVB and Signature, will be fully bailed out and all deposits covered. However, if the Farmers Bank in flyover country goes belly up, I expect the Feds to bring lawsuits against the bank management, and even try to deny FDIC insurance coverage to the depositors. Just another aspect of our evolving two tier justice and regulatory system

  6. I honestly don’t see any real impact to the points and miles game right now, and everything else is WAY too speculative to predict. For the moment, the biggest impact on the industry may be the significant decline in jet fuel cost — despite what people may think, oil is priced more as a financial instrument than on actual oil supply and demand. But I don’t really see these savings being passed on to consumers given the current supply/demand imbalance in favor of the airlines. There would be a material change to travellers if investors took advantage of what seems to be the gross underpricing of US airline stocks to acquire one or more of these companies, but that seems improbable due to foreign ownership rules and Biden antitrust policies.

  7. “woke bank” LOL. what, only white people are entitled to bank accounts? q-anon logic. next they’ll be calling you a marxist, Gary.

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