Maybe struggling banks can offer prediction markets

Failure #6
The sixth bank failure of 2026 went down Friday night as Nano Banc of Irvine, California, was seized and sold by regulators. If you're counting at home, that is not only more failures than all of 2025, it is more than all of 2025 and 2024 combined. There have been more failures in 2026 than in any year since 2017.

The rather large caveat here is that we are starting at an extremely low base. There were only two failures in both 2025 and 2024. Even in 2023 when we had the very high-profile failures of Silicon Valley Bank and First Republic, there were only five for the whole year. There weren't any in 2022 and 2021. So the industry has been very stable lately.

So stable that no more than eight banks have failed in any year since 2014, according to FDIC records, though eight banks failed in both 2015 and 2017. The last time we saw a significant wave of bank failures, of course, was in the years after the Crash of 2008. Between then and 2013, almost 500 banks failed, with the worst single year being 2010, which saw 157 go down. 

It has been an almost extraordinarily stable and profitable decade or so for the U.S. banking industry. Banks collectively earned $90 billion in the second quarter. I couldn't find an outlook yet for the third quarter, but I expect it will be another good quarter, at least overall for the industry. The problem is while the top banks are doing great, the outlook isn't as hot the lower you go. Looking at regional banks, deposit-cost competition is at intense levels, JPMorgan analysts wrote in a research note, something that isn't likely to change in the second half of 2026.

"On a scale of 1-10 with 10 being max bullish, we are about a 3 at this stage," they wrote.

Then at the very end you've got the banks like Nano Banc that are just quietly fading away. And there are more troubled banks out there. The FDIC on Friday slapped a formal corrective action on Old Glory Bank because its capital dropped below minimum requirements and it failed to respond to an earlier warning.

From a top-down view the industry looks very strong. When you start looking from the bottom up, it changes.

Trades, but no traders
Polymarket, which was sued by the state of New York this week for running an illegal gambling operation, advertises heavily. So does Kalshi, their main competitor. And if you've seen enough of their ads, you've perhaps noticed the subliminal, or maybe not so subliminal, message. Take, for instance, this ad. It features two-time Super Bowl MVP Eli Manning, Reggie Bush, Craig Robinson, and some college coach I don't recognize but who probably makes $10 million a year at a Division I program. "Trade the chaos of football," is the title, and the word trade is spoken at least six times.

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Then there is this ad, which features Manning along with LeBron James, Derek Jeter, Richard Sherman, Sue Bird, and half a dozen famous actors. It also features the word trade. Trade. Trade. Trade. 

Polymarket and Kalshi have argued that they are not traditional gambling businesses, but rather "prediction markets," something more akin to derivatives markets. They have a somewhat plausible argument. These businesses are not set up like traditional gambling; they are not the house. The users' counterparties are other users. So they should be regulated like the CME and not MGM. Thus the repeated use of the word trade in their ads. 

But you know what you don't see in those ads? Traders. There's no David Einhorn, no Carl Icahn, no Ken Griffin, no Jim Chanos, no Lynn Tilton. The reason is obvious. These companies are looking to attract gamblers, not investors. They make the majority of their money from people betting on sports, not people speculating in cotton futures. Which is why New York is suing them. 

Lawsuits such as this one, as well as anything that happens in Congress, will eventually determine what regulatory regime these outfits fall under. If they ultimately fall under the broad umbrella of financial services, well, won't that be interesting? Will banks, maybe struggling banks, banks like I was just talking about, be tempted to start offering odds on the Eagles-Bears game?