Silicon Valley Bank’s collapse in March 2023 was assumed to be a contained event, a momentary banking scare that didn’t metastasize into anything close to 2008. Yet, the evidence has always been that that this wasn’t just a regional banking issue or a case of poor risk management by a few unlucky institutions. It was a broader systemic event that highlighted the already determined trajectory of the global financial system, the monetary order, and, by extension, the real economy. This was just one of the first "few bumps" down a derelict road. And while the immediate panic was subdued thanks to quick action by way of financial firefighting on behalf of the arsonists, i.e. policymakers and central bankers, the factors that led to SVB’s failure were not resolved; they merely allowed advanced further, creeping further into every facet of global finance. What continues to be portrayed as localized bank runs and deposit flights was in fact the metastasis of our financial malignancy into great bouts of credit stagnation, liquidity hoarding, and an entrenched real "on the ground" economic malaise that still grips the system today. People seem to think that because this was "so long ago," it can't have anything to do with what we are experiencing now. They couldn't be further from the truth.
The prevailing belief, that the crisis was successfully managed and left no lasting damage, is completely detached from reality and any sound economic / financial intelligence. Bond markets, global lending patterns, labor market stagnation, and credit availability all point to a persistent deterioration that has deepened ever since. If anything, this was one of, if not the, key moments where the financial markets and the banking sector conceded that the post-pandemic economic trajectory was unsustainable. This being said, policymakers were quick to prevent the screams and hide the bodies. So when we're asking ourselves why things are the way they are today and why they are likely to deteriorate further, it will be easy to blame the symptoms. But it's not a new administration, tariffs, inflation, deflation, rising or lowering interest rates that have caused these problems. The root of the issue is ongoing and structurally systemic monetary issues that all these new "symptoms" will only exacerbate, making the potential day of reckoning much, and I stress much, worse.
SVB’s implosion did not occur in a vacuum. Credit Suisse’s failure was a parallel event that should have shattered the illusion that this was strictly a problem of U.S. regional banks mismanaging their risk in a rising rate environment. Credit Suisse was a globally significant financial institution, deeply embedded in the European banking system. Its collapse was not about deposit flight due to interest rates; it was about a structurally weak institution finally reaching its breaking point in an environment where the systemic imbalances built up over years could no longer be ignored. This was the real warning: a fundamental shift in the monetary order was occurring, and the market knew it even if policymakers refused to admit it. If SVB was the match, Credit Suisse was the proof that the fire was not just a local blaze, it was a structural inferno.
Take the case of global sovereign debt markets. Germany’s two-year bond yield peaked on March 9, 2023, the day before SVB collapsed. Since then, it has steadily declined, even as the ECB continued to raise rates for months afterward. The same pattern repeated across the yield curves of major economies, with rates beginning a slow descent despite central banks maintaining their tightening stance. This wasn’t merely a reflection of monetary policy expectations; it was a signal that markets had fundamentally reassessed the economic outlook. The sharp inversion of yield curves globally, particularly in European bonds and U.S. Treasuries, became an unignorable warning that stagnation, not expansion, was the dominant force ahead.
The disconnect between policy rates and actual economic conditions has been growing ever since. The Federal Reserve and ECB continued to hike rates well into the second half of 2023, yet bank lending did not expand. Instead, the banking sector shifted dramatically toward hoarding liquidity and risk aversion. The weeks following SVB’s collapse saw a record contraction in U.S. bank credit, and while some nominal recovery occurred by late 2023, the composition of that recovery tells the real story.
Instead of lending to businesses or households, banks funneled their balance sheets into government securities and agency debt, an unmistakable sign that they were prioritizing safety over economic expansion. The credit impulse, a key driver of economic growth, turned negative across major economies.
This is particularly evident in the United States, where total bank credit stalled in March 2023 and has remained essentially flat ever since. A temporary uptick in late 2023 was not due to a resumption of lending but an accumulation of U.S. Treasuries. When filtering out loans to financial intermediaries, the reality becomes even starker: lending to the real economy has outright contracted. This is a banking system in full retreat, unwilling to take on risk despite nominally high interest rates that should, under normal circumstances, incentivize lending.
Labor markets, too, have been quietly deteriorating in step with this contraction. The U.S. unemployment rate reached its cycle low in April 2023, only to begin rising by May. Job openings, a key indicator of labor demand, have trended lower, while job growth has decelerated across the board. Most importantly, hiring has been almost non-existent. Wage growth, once touted as evidence of economic resilience, has steadily slowed in real terms, tracking the broader deceleration in economic activity. There just is no meaningful demand for workers.
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In Europe, the situation is even more pronounced. Germany, once the engine of the Eurozone economy, has seen industrial production contract for months on end, with PMI surveys deeply entrenched in contractionary territory. The supposed post-pandemic economic recovery was never a recovery at all, it was an unsustainable rebound driven by supply chain distortions, fiscal stimulus, and a misallocation of capital into speculative ventures that could not be sustained in a normalized monetary environment.
The Federal Reserve’s handling of the crisis was, in retrospect, a textbook case of winning the battle but losing the war. They successfully prevented a full-scale banking meltdown, but at the cost of further entrenching a system-wide retreat from risk-taking. A shallow and pyrrhic victory. The consequence has been a slow but inexorable tightening of financial conditions, despite the Fed’s insistence that the crisis had been contained. This is precisely why bond yields began falling long before rate cuts were even discussed, markets understood that the damage had already been done.
The critical moment came not just with SVB’s failure but in its immediate aftermath. Banks did not resume lending; instead, they sought safety, while market expectations shifted toward economic stagnation. The yield curve has remained deeply inverted, signaling a long and grinding slowdown ahead. Even as the Fed kept rates high through 2023, the market increasingly ignored them. By the time Powell & Co. acknowledged the need for rate cuts in early 2024, it was already too late, the trajectory had been set. The fed, yet again history shows, does not control interest rates.
This is the deeper reality: the banking crisis of March 2023 wasn’t a contained event. It was part of an unmistakable confirmation that the economy was not on stable footing, that the very distortions, i.e. policy responses, of the pandemic era had left behind a structurally weak financial system addicted to even more cheap and artificial credit, and that the transition back to normalcy was going to be anything but smooth. This being said, the aftermath, or inevitable rebalancing, is still unfolding, whether policymakers choose to acknowledge it or not.
Where does this leave us now, under Trump’s return to office? The structural weaknesses that SVB and Credit Suisse exposed have not been addressed. Further, Trump will not be an answer or a panacea. Instead, the political and economic narrative has shifted toward trade wars, tariffs, and further towards economic nationalism. While the administration pushes aggressive trade measures, 25% tariffs on Canadian and Mexican imports, 10% on Chinese goods, the deeper issue remains unresolved. These protectionist policies, justified under the guise of border security and national sovereignty, are layered on top of an already deteriorating economic environment. They are not the cause of the decline but will undoubtedly accelerate it. The last thing an economy struggling with weak credit expansion and rising financial stress needs is an added layer of trade distortions that will only further increase unemployment and weaken global demand.
So while the Fed and policymakers still scramble to present a picture of stability, the reality is that the crisis never ended. It's merely rolling itself out slowly; until it ends suddenly. Alas, however, inevitable does not imply imminence.
SVB and Credit Suisse were symptoms of a much deeper, ongoing process, one that is still playing out across financial markets, labor markets, and global trade today. The reckoning that was delayed is still coming. The only question left is when.
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