The Collateral Crack: How Zions, Western Alliance, and the “Cockroach” Effect Signal a Deeper Credit Reckoning

There’s a temptation to treat every regional banking headline as an isolated case — another “bad apple,” another “fraud,” another “one-off.”
That’s how the stories of Zions Bank and Western Alliance were framed earlier this week. Two mid-sized regional lenders, both reporting relatively modest losses tied to questionable collateral arrangements. On their own, the numbers aren’t catastrophic. Fifty million here, a few hundred million there — the kind of losses banks digest all the time.

But the details matter. And they reveal a much larger, more systemic issue emerging across the financial system — one that connects Zions and Western Alliance to earlier cases like Tri-Color and First Brands, and back even further to the structural tightening that’s been building since the 2023 banking crisis.

When you trace the thread, it all comes back to the same root problem: collateral.
Collateral quality, collateral verification, collateral reuse, and the widespread assumption that “as long as Jay Powell says everything’s fine,” nobody really needs to look too closely.

Now, as the economic climate turns, that complacency is being exposed — and it’s not pretty.

The Zions and Western Alliance Revelation

The latest flare-up began when Zions Bank disclosed that it had extended

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