Over the last week, three U.S. banks have failed. More banks are under extreme stress. This stress is not new and was not unknown but is becoming comm

Banking in very uncertain times

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2023-03-14 18:30:11

Over the last week, three U.S. banks have failed. More banks are under extreme stress. This stress is not new and was not unknown but is becoming common knowledge rapidly. We may be in the early stages of a banking crisis.

“Crisis” is a bit of a strong word, even when invoked as a potential outcome, and I try to be fairly sober-minded. I’d like to explain how we got here, how the relevant institutions are generally expected to work, what seems to be different this time, and what smart people who are not normally professionally engaged in this might find relevant to know about the infrastructure that we all depend on.

Short disclaimer: I worked at Stripe (which is not a bank, but works with many banks) for six years prior to leaving full-time employment recently. I am an advisor there now. My views are entirely my own, and my analysis is only informed by publicly available data. I put a longer disclaimer at the bottom.

As we previously covered in a discussion about deposit insurance, now unfortunately topical, banks do not fail in a day. The seeds of their destruction are sewn and watered for years, and then they are reaped quickly.