Banks are strong, so is it a crisis after all?

I'd like to highlight a fascinating observation.

The first quarter bore witness to major drama in the US banking sector. Two banks declared bankruptcy, with one entering liquidation. Foreboding headlines predicted financial system meltdowns, even drawing parallels to the 2008 crisis.

And yet, yesterday, when the FDIC released aggregate banking sector results, their data indicated that the total net profit of US banks in Q1 2023 was up 33.6% compared to the same period in 2022.

The combined net income of 4,672 commercial banks and savings institutions, all part of the insurance system and obligated to publish reports, totaled $79.8 billion in the period January-March—$20.1 billion more than a year earlier (largely due to net interest income growth). The lion's share of financial institutions (66.7%) reported profit increases as compared to Q1 2022, and the proportion of unprofitable banks dropped from 5.6% to 4.4% year-on-year. Furthermore, total profits grew by $11.5 billion (16.9%) relative to Q4 2022.

It's clear the banking industry has shown remarkable resilience under tremendous stress, with net incomes staying robust and the sector remaining well-capitalized. Could it be that the situation with SVB and Signature Bank is more an isolated incident of poor risk management and less an indicator that a systemic banking crisis is nigh?

Rising rates are like a receding tide, revealing who and what ventured too far into the sea. There may be other victims, so underestimating the risks isn't wise. But neither is overestimating them.