It still feels a bit like markets haven’t internalized (or are unwilling to come to terms with) what the events of the past several days may portend for the banking system and the economy more generally.

Already, enough has been written on SVB to fill a book. And you can be sure that somebody, somewhere is already planning to write an actual book about the episode.

But in our zeal to pen the definitive take on one bank’s demise, we shouldn’t be derelict when it comes to assessing the read-through for the macro and markets going forward. Sure, it’s important to understand what led to SVB’s collapse, but I think that’s pretty well established by now.

Looking ahead, banks may be grappling with what Nomura’s Charlie McElligott on Tuesday called a “profitability crisis,” which could be relatively slow-moving, but painful and damaging nevertheless.

“This bank ‘insolvency’ / ‘liquidity crisis’ is actually about bank profitability, and the viability of their models going forward, in an environment where you’re fighting the yield curve and NIM compression, facing forced capital raises and absorbing increased cost of funding and wider credit spreads,” McElligott wrote.

Morgan Stanley’s Mike Wilson delivered a similar assessment. “Over the past year, bank funding costs have not kept pace with the higher Fed funds rate, allowing banks to create credit at profitable NIMs,” he said.

That’s in no small part because many depositors simply didn’t know any better. But they’re plainly starting to figure it out. Just have a look at the simple figure below.

Regular readers know I harbor a pretty dim view of Americans’ collective intelligence, which means I doubt seriously that it’s occurred to most depositors that T-bills get you nearly 5%. Most depositors don’t know what a T-bill is and they don’t have financial advisors to tell them.

However, anecdotally there do seem to be quite a lot of ads these days for high-interest savings products, and the Google Trends chart above suggests Americans are perhaps more enlightened than I’m inclined to give them credit for.

“Depositors have been slow to realize they can get a much better rate elsewhere, but that has changed more recently with depositors deciding to pull their money from traditional banks and putting it into higher-yielding securities,” Wilson went on. Morgan Stanley sees that trend continuing “unless banks decide to raise the rate they pay depositors.”

Of course, the more you pay depositors, the lower your margins. “Most critically at the core of this issue for banks are the structural forces (money market rates and the antiquated RRP facility) which perpetuate a bleeding deposit flight that spans across non-SIFIs,” McElligott remarked, on the way to cautioning that if any profit crunch were to become endemic, it’d erode bank viability by definition, setting the stage for more, albeit less dramatic, failures over time.

What does all of that mean for the broader economy? Well, it’s quite simple. As Wilson wrote, lower bank profits likely mean fewer loans, and “new credit is how money supply expands.”