“Translation: there are ~30 banks that are effectively insolvent and are only kept alive thanks to the Fed’s emergency funding. Whether or not these banks fail, and whether their failure leads to a cascade of adverse events, remains to be seen. Unfortunately, absent a chain of defaults which reveals who the crippled banks are, we won’t know for sure the entities behind the discount window spike until the Fed releases transaction data on the discount window two years later.”

…

“If all that sounds like a lot of financial jargon, then please ignore it - unless the discount window usage spikes again in coming weeks, it is likely that whatever event prompted one or more banks to quietly demand a bailout from the Fed, will pass. On the other hand, the message sent from the spike in discount window usage is ominous: no matter how one spins it, it suggests that as many as 30 small banks are now insolvent, and could represent the weakest link that - like the relatively small Terra/Luna implosion cascaded to the collapse of FTX and the wholesale deleveraging of the entire crypto ecosystem - leads to an violent and painful deleveraging of the entire US financial system.”