If you’re wondering whether recent events — and by “recent events” I mean bank runs, failures and a still-tenuous situation at a systemically important financial institution — are manifesting in ways that suggest, or may portend, funding problems and/or serious market instability, the answer is “Sort of.”

Over the last week, some readers noted that most “regular” people probably didn’t pay much attention to the second-largest bank collapse in American history. I’d say that’s both accurate and inaccurate. Certainly, everyday people unaffected by the SVB fiasco weren’t up at night pondering the ramifications for the economy. More colloquially, if you didn’t think you were about to lose money, you didn’t lose sleep. But, it was major national news, and it’s predictably become a political hot potato.

Similarly, I don’t dispute the idea that virtually no one in America who isn’t involved in markets or finance cares anything about Credit Suisse. However, headlines touting the prospective failure of a bank that’s “too big to fail” are difficult to ignore. On Thursday, a story about Credit Suisse was second only to the latest news from Fox’s 2020 election legal saga in The Washington Post‘s “Post Most” newsletter, for example. This is hardly a tale that’s confined to the financial media.

So, on one hand, I recognize that everyday people aren’t obsessing over “current market tensions” (to employ the ECB’s euphemism), but on the other, I think it’s a stretch to say nobody cares outside of those directly impacted (in the case of SVB) or outside of Wall Street (in the case of Credit Suisse).

When would Main Street be forced to care? That’s not an easy question to answer. Indeed, as documented vividly in “Where Were You When The World Didn’t End?“, a lot of average people had no idea what was going on in September and October of 2008, and that was Lehman. Generally speaking, people start to notice when they’re affected. Ironically, some of the best indicators for when financial market turmoil is on the verge of spiraling such that average people may be impacted, are esoteric — “ostensible arcana,” as I’m fond of putting it.

Consider, for example, that NAHB Chair Alicia Huey this week cited rates volatility as a factor that could weigh on homebuilder sentiment going forward, with ramifications for the nascent housing market recovery. Huey surely didn’t have Harley Bassman’s MOVE index in mind, but if she were putting together a slide deck, a MOVE chart would certainly make a splash.

Plainly, the spike shown in the visual will be hard to sustain, but the point is that this is the kind of erratic behavior which, when exhibited by the most important (and supposedly deepest) market on the planet, has the potential to spill over quickly to the “real world,” if you will.

Relatedly, the deepest market on Earth isn’t so deep these days. Liquidity is problematic across assets, but when market depth is impaired in Treasurys, it’s vexing, something Goldman’s Scott Rubner underscored. “There are some real size volumes going through and risk transfer, and it is costing a lot to move stuff around,” he remarked this week.

Bloomberg’s gauge of liquidity in US government securities suggests deteriorating conditions. Note that the gauge shown below hovered between 0.5 and 0.75 for most of the COVID recovery. Liquidity began to worsen in late 2021, and it’s been poor since. Bloomberg’s index has loitered near March 2020 panic readings for months.

“Liquidity is significantly compromised,” JPMorgan’s Jay Barry and Jason Hunter wrote in a recent note, citing “extremely volatile conditions,” and lamenting that market depth “remains at the weakest levels since late-March 2020.”

Of course, market depth and volatility are inversely correlated. “Liquidity and vol are very much related. An illiquid market is volatile,” Macro Risk Advisors’ Dean Curnutt said. “A volatile market creates risk management stress that leads to illiquidity.”

Speaking of liquidity, banks needed some. Or wanted some, at least. Borrowing from the discount window over the last week surged to almost $153 billion, a record.

The previous high was $110.7 billion a month after Lehman collapsed.

In addition, banks tapped the Fed’s new term lending program for almost $12 billion, while an “other credit extensions” line item showed a $142.8 billion increase tied to the FDIC’s new banks set up overnight following SVB’s implosion and Signature’s closure.

And then there’s funding angst, which is what you really don’t want to see if you’re a policymaker.

“Measures like cross-currency basis and FRA-OIS have widened sharply and this is going to start to worry bank funding teams as they think about the impact of their need to borrow, access to funds and impacts down the line,” Martin Whetton, head of fixed-income and rates strategy at Commonwealth Bank of Australia, cautioned this week.

The quote from Whetton, which Bloomberg ran on Wednesday evening in the US, tied all of the above together quite succinctly. “Companies will also be pondering [funding stress] when deciding about loan facilities,” he said. “Once again, we find ourselves in a tricky market condition, void of liquidity, with further rate hikes for fundamental reasons almost fully overwhelmed by the reality of reduced lubrication in the financial system.”

My sense as of Thursday afternoon was that this storm will soon pass, even if we’ve witnessed the onset of a “profitability crisis” that’ll make banking a cloudy, dreary affair for the foreseeable future. If that’s the case, Main Street will feel it through tighter lending standards and, likely, a mild recession, but not through the sort of paroxysm with the potential to spark social unrest. Ultimately, Wall Street’s decision to rescue First Republic might’ve marked the end of the mini-crisis.

If, however, the storm worsens and the turmoil starts to manifest in broader funding stress, wider bases, more counterparty worries between large financial institutions and even worse liquidity in Treasurys, monetary policy would have to respond accordingly, lest Main Street should have a bigger problem than inflation. The only thing worse than expensive groceries is empty shelves.