Macro Monday – Small Package, Big Surprise. It’s never boring. Periods of low market volatility, like now, give time to figure out the next surprise. Like banking. “The U.S. banking system is sound and resilient.” This phrase has opened the second paragraph of the FOMC Statement since March, when banking strains emerged. Words ring hollow. In May 2007, Bernanke declared that “the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers.” It was an expectation – the Fed was ready to respond if wrong. And boy did they. Like the rest of us, policymakers get plenty wrong. In 2022, for instance, policy rates ended up rising 400 basis points more than planned when the year started. Today, the FOMC feels compelled to declare the resilience of the banking system. What does it mean? The FOMC is prepared to ensure banking resilience if needed. And it may be needed. Markets signal caution. US regional banking ETF, IAT, is quietly approaching March lows, down 50% from its cycle peak. Fed data reinforce a challenged sector. Small banks have $5.7 trillion in assets, 33% of the total US banking system. But small banks are far more exposed to commercial loans, at $1.9 trillion or 66% of the US total. Those commercial loans are nearly 3-times the equity of small banks. Banking strains aren’t over. And March is an excellent case study for the impact on digital asset markets. Bitcoin played the role of banking safe-haven – expect a repeat performance.