America's system of nearly 10,000 banks is not a market inefficiency but a direct result of the founding fathers' aversion to centralized, oligopolistic British banks. They deliberately architected a fractured system to prevent the concentration of financial power and to better serve local business people, a principle that still shapes the economy today.
Related Insights
Today's market is more fragile than during the dot-com bubble because value is even more concentrated in a few tech giants. Ten companies now represent 40% of the S&P 500. This hyper-concentration means the failure of a single company or trend (like AI) doesn't just impact a sector; it threatens the entire global economy, removing all robustness from the system.
The SVB crisis wasn't a traditional bank run caused by bad loans. It was the first instance where the speed of the internet and digital fund transfers outpaced regulatory reaction, turning a manageable asset-liability mismatch into a systemic crisis. This highlights a new type of technological 'tail risk' for modern banking.
Silicon Valley Bank was already a member of deposit networks that could have prevented its collapse. However, 94% of its deposits remained uninsured because the bank failed to actually use the tools at its disposal. This reveals that the mere existence of a solution is worthless without proper implementation, integration, and incentives for adoption within an organization.
While consumer fintech gets the hype, the most systematically important opportunities lie in building 'utility services' that connect existing institutions. These complex, non-sexy infrastructure plays—like deposit networks—enable the entire ecosystem to function more efficiently, creating a deep moat by becoming critical financial market plumbing.
The city wasn't simply bad at accounting; it effectively had no centralized system. Finances were tracked on scraps of paper and in drawers, making it impossible to know the true state of its debt. This systemic failure, not just policy choices, made the collapse inevitable.
The concept of 'banking deserts' extends beyond underserved regions. When specialized banks like SVB disappear, entire industry verticals (like tech, agriculture, or wine) can become 'underbanked.' This creates a vacuum in specialized credit and financial services that larger, generalist banks may not fill, thus stifling innovation in specific economic sectors.
The race to manage 40 million government-seeded 'Trump baby accounts' shows how a single policy decision can create a massive, winner-take-all market. This allows the government to act as a 'kingmaker,' anointing one or a few companies with a generational customer acquisition opportunity, similar to how the 401k launch benefited Fidelity and Vanguard.
Recent breakdowns in student loan processing, AI governance, and cloud infrastructure highlight the vulnerability of centralized systems. This pattern underscores a key personal finance strategy: mitigate risk by decentralizing your money, data, and income streams across various platforms and sources.
Despite what is described as "stupid" and "sclerotic" economic policies like tariffs and trade wars, the U.S. economy continues to grow. This resilience is not due to government strategy but to the relentless daily innovation of American businesses, which succeed in spite of, not because of, macro-level decisions.
The trend of companies staying private longer and raising huge late-stage rounds isn't just about VC exuberance. It's a direct consequence of a series of regulations (like Sarbanes-Oxley) that made going public extremely costly and onerous. As a result, the private capital markets evolved to fill the gap, fundamentally changing venture capital.