This week, Tricolor Holdings, the third-largest auto lender in California and Texas, filed for Chapter 7 bankruptcy. Bloomberg and Reuters report that the company’s bankruptcy filing lists both assets and liabilities in the $1-$10B range.Tricolor obtained financing from JPMorgan, Fifth Third Bank, and Barclays. In a statement, Fifth Third said it now expects a non-cash impairment charge of $170-$200MM related to a “problem client,” which multiple reports identify as Tricolor. JPMorgan reportedly has about $200MM of exposure to the company.Media have also reported that BlackRock (NYSE:BLK) will post losses related to Tricolor, likely because the lender was a major issuer in the asset-backed securities (ABS) market. In June, Tricolor issued $2B of ABS that were rated AAA - the highest possible rating - suggesting they were considered among the safest available investments. Those securities are now reportedly trading as low as 12 cents on the dollar. BlackRock apparently purchased these securities at issuance at 100 cents on the dollar.If you’ve been following our banking work, this bankruptcy should not come as a surprise. Over the past 24 months, we have warned that developments in auto lending were likely to lead to major issues. Forward-looking indicators in the industry have suggested for some time that it was only a matter of time before we saw bankruptcies and rising nonperforming loans.As the chart below shows, higher car prices have driven a significant increase in the average origination amount for auto loans, especially for used-car loans. Tricolor has largely focused on used-car loans and subprime borrowers.Source: NY FedA combination of larger loan origination amounts and higher interest rates has caused a sharp spike in average monthly payments for auto loans.Source: NY FedNotably, although the first chart shows that loan origination amounts declined somewhat in the second half of 2023, average monthly payments did not fall; they continued to rise.Unsurprisingly, this combination has pushed delinquency ratios higher. What began as a deterioration concentrated among lower-income borrowers is now evident across all borrower segments, as the chart below shows.Source: NY FedSome argue that auto lending represents a relatively small share of banks’ credit books. Recent data put auto-loan balances at about 15% of the sector’s total credit. That may seem modest, but the picture looks very different relative to equity: auto loans amount to nearly 70% of the sector’s total capital.Another important dimension is Tricolor’s securitizations. Roughly three months ago, the company issued AAA-rated asset-backed securities. We have repeatedly highlighted the large holdings of structured credit at the top-25 U.S. banks, including CLOs, CMBS, ABS, and other derivative-linked exposures. The fact that a AAA-rated tranche is reportedly trading around 12 cents on the dollar so soon after issuance underscores the opacity of the structured-credit market.Media coverage now frames the Tricolor collapse as a wake-up call for banks with exposure to retail lending. However, forward-looking indicators have been signaling material deterioration for quite some time.Believe it or not, there are more major issues on the larger bank balance sheets as compared to smaller banks, which we have covered in past articles. Moreover, consider that there was one major issue which caused the GFC back in 2008, whereas today, we currently have many more large issues on bank balance sheets. These risk factors include major issues in commercial real estate, rising risks in consumer debt (approaching 2007 levels), underwater long-term securities, over-the-counter derivatives, high-risk shadow banking (the lending for which has exploded), and elevated default risk in commercial and industrial (C&I) lending. So, in our opinion, the current banking environment presents even greater risks than what we have seen during the 2008 GFC.Almost all the banks that we have recommended are community banks, which do not have any of the issues we have been outlining over the last several years. Of course, we’re not saying that all community banks are good. There are a lot of small community banks that are much weaker than larger banks. That’s why it’s absolutely imperative to engage in a thorough due diligence to find a safer bank for your hard-earned money. And what we have found is that there are still some very solid and safe community banks with conservative business models.So, I want to take this opportunity to remind you that we have reviewed many larger banks in our articles. But I must warn you: The substance of that analysis is not looking too good for the future of the larger banks in the United States, and you can read about them in the prior articles we have written.Moreover, if you believe that the banking issues have been addressed, I think that New York Community Bank is reminding us that we have likely only seen the tip of the iceberg. We were also able to identify the exact reasons in an article which caused SVB to fail. And I can assure you that they have not been resolved. It’s now only a matter of time before the rest of the market begins to take notice. By then, it will likely be too late for many bank deposit holders.At the end of the day, we’re speaking of protecting your hard-earned money. Therefore, it behooves you to engage in due diligence regarding the banks which currently house your money.You have a responsibility to yourself and your family to make sure your money resides in only the safest of institutions. And if you’re relying on the FDIC, I suggest you read our prior articles, which outline why such reliance will not be as prudent as you may believe in the coming years, with one of the main reasons being the banking industry’s desired move towards bail-ins. (And, if you do not know what a bail-in is, I suggest you read our prior articles.)It’s time for you to do a deep dive on the banks that house your hard-earned money in order to determine whether your bank is truly solid or not.