The temptation to write about the SNP’s comeuppance over its fibs and secrecy on membership numbers – which is only the latest manifestation of an arrogance which grips that party – is great. Unfortunately, the SNP’s difficulties are only a sideshow. There are bigger things afoot as shown by the Credit Suisse takeover.

Banking. We don’t really like banks or bankers but they are vital to all of us whether as citizens or businesses.

Banks supply the oxygen which an economy needs to function, the ability to move cash reliably and safely around the system and to provide credit.

Banking relies on confidence. Banks take in money which they must often pay back immediately if required and they then lend it out over longer periods.

Mortgages are a good example, the bank which provides you with a 25 year mortgage has no matching deposit which lasts as long. There is a mismatch of liquidity. If there is a crisis of confidence and everybody asks for their money back at the same time there is a problem

Confidence in its turn depends on two things, prudence and a central bank.

The Herald is only £1 for three months.
This offer ends Friday so click here and don't miss out!

The central bank’s key role is to provide a solution to the liquidity problem if required, by providing funds to a bank which is fundamentally solvent but which is in difficulty because depositors are asking for their money back quicker than assets can be realised.

Throughout modern history there have been runs on banks when nervous depositors rush to take their money out and the individual bank cannot meet those demands. The central bank must then decide when and how to step in by providing liquidity, facilitating the takeover of weaker banks by stronger ones or guaranteeing deposits in order to restore stability.

A growing issue, much greater now than in the 2008 financial crisis, is the speed at which transactions take place and information flows. Companies and individuals now expect to be able to move their money instantly. If there is a problem at a bank the digital world ignites, transmitting, amplifying and distorting any problems.

This is what happened to the Californian bank, SVB, which had an unusually concentrated depositor base which took fright and sought to withdraw funds en masse. When you deposit funds you don’t want to take any risk at all so when you smell trouble you move fast. Nowadays you can move very fast which is why banking problems increasingly emerge very rapidly with central banks and regulators having to move with equal speed.

Prudence is the other pillar underpinning confidence and here there is both good news and bad.

The good news is that the core banking system, particularly in the UK, is well regulated. This means that lending is carefully monitored and capital buffers are strong. In addition, the core banks are now run by people who know what they are doing, they understand that banking is about managing a balance sheet not chasing the last pound of profit.

The bad news is that beyond the core banks all is not well. Where core banks have reduced their activity in certain markets others have moved in.

Where once household names would have provided loans to private equity buyouts that market is now dominated by funds you would never have heard of.

If you delve into who provided the finance for your new car you will follow a trail which may end up not with a high street bank but with the car manufacturer itself or financial funds backed by insurance companies or other funders which in turn aggregate deposits attracted by higher rates of interest than high street banks offer.

There are problems with this shadow banking system. It is often run by people who think banking is more about lending money than getting it back and, critically, it has no central bank behind it. If there is a liquidity crunch there is no cavalry. In times of pressure there is therefore the potential for extreme distress, the dumping of assets and an infectious spiral of decline which may then start to threaten the core system.

The flaws lie dormant while interest rates remain very low but as rates rise the tide goes out on those who have been playing dangerous games and financial distress starts to appear.

What does all this mean?

First, there is more trouble to come as previous interest rates rises work their way through a system which is under stress.

Second, banks will start to be a bit nicer to their retail depositors, paying them more in order to secure their deposit base and conversely charging higher margins on loans.

Third, there will be a move of depositors towards quality core banks which will cause potentially extreme pain for some of the shadow banks. The strong will get stronger and the weak may disappear.

Fourth, the effect of this process is itself a dampener of economic activity and inflation. We are probably at or very near the peak in interest rates.