Jay Powell raised a few eyebrows this week saying that conditions in the banking industry are getting better when reportedly half of all banks are already “potentially” insolvent. Is he whistling in the dark, hoping we don’t panic and trigger a 2008-style crash?

I actually think he’s right. We’re actually a long way from a Lehman Brothers “too big to fail” failure. I know this because I know how the banking landscape has actually evolved in the last 15 years.

There are 4,200 banks. Most are very small . . . not even “regional” in scope. At a glance, not even 400 of them are big enough to big publicly traded and the bar there is extremely low. The smallest bank stock on my radar, Carver (CARV), wasn’t even a $60 million company in its prime.

It’s hurting, don’t get me wrong. Earnings have crashed in the squeeze between higher lending rates and deteriorating credit quality. But it’s 0.02% the size of Citi (C) today and 0.3% the size of Lehman Brothers back in the day. Its problems are not systemic or contagious.

Ten years ago, the 10 biggest institutions held more than half of all U.S. deposits. Today their footprint has grown to more like two thirds of the overall market, leaving everyone else fighting over a shrinking piece. That’s bad for all those smaller banks . . . but as long as the bulge bracket remains strong, the industry as a whole won’t show much strain.

And the bulge bracket just reported earnings. They’re confident. They’re doing fine. While they are arguably too big to be allowed to fail at this point, they’re big enough to look out for themselves.

That’s what Powell sees. While it’s sad and a little scary to see a Silicon Valley Bank or a First Republic Bank implode, these companies weren’t even 1/20 the size of Lehman Brothers back in the day. They make headlines. They don’t rock the boat.

Will Powell keep tightening until a truly important institution breaks? That’s the real question because your gut response says a lot about your sense of the Fed’s authority.

If you think Powell and company are more likely to overreach than correct at the first sign of crisis, you’re in a miserable situation. We can’t fight the Fed. If the Fed is incompetent, there’s no place to hide.

Lately the market’s faith in the Fed has been faltering. We started to see it when Powell suddenly decided in 2019 that there was no reason to maintain interest rate discipline in the absence of inflation. He was more interested in boosting the economy and keeping the market cheering.

Then in the early stages of the pandemic, he clearly panicked. When the threat of a 2008-style credit crisis became real, rates went all the way to zero. Now here we are. Powell is talking tough as long as inflation is on the table, but it’s hard to ignore his track record . . . and harder than it once was to trust the Fed to act as long-term steward of the economy as a whole.

We’re a long way from the invincible era of Alan Greenspan, much less Ben Bernanke. But even those icons ultimately revealed feet of clay. Greenspan triggered both the dot-com and the 2008 crashes. Bernanke cleaned up the latter, but the results were far from robust.

At the end of the day, Powell’s profile reveals that while we can’t fight the Fed, we’re still free to make up our own minds. I think he’s right to do what it takes to beat inflation into submission. I also think he’s right that the banking environment as a whole remains robust.

But I know that if big banks start breaking, he’ll flinch. For now, I am not buying the little banks on the dip. Let this shake out. We’ll be here to pick up the pieces . . . just like Jamie Dimon and his cronies in the big banks are picking them up even as we speak.