How did banks ever survive rising interest rates in years gone by? It’s not the first time this rodeo has been in town.
We haven't seen such rapid rate of interest-rate increases since 1978, if even then - and if you remember, that triggered the S&L crisis as well as the Mexican/Latin American debt crisis.
Moreover banks are wholly different creatures than they were 45 years ago. Back then there were many more banks, they were smaller, and their assets (I believe) were more diversified.
The present problem isn't one of "credit" its really of duration, or length of the bonds. Banks took all that depositor cash from Covid, and what wasn't loaned, was stored in high-quality treasury bonds.
But as interest rates went from 0.75% to 4.0% on a 10 year note, the market value of that note fell quite a lot. So they are sitting on an asset that has dropped up to 20% in value.
Now their depositors are leaving, looking for higher interest rates, but now also in fear - the banks need to pay those depositors. To do that, they need to liquidate some assets. If they have to sell too much, they run out of equity and become, at least technically, insolvent.
You are partially correct. In this case rates rose at an unprecidented rate to new highs in a years time. Previously, rate increases were much slower, enabling banks to cycle funds out of money losers and maintain their balances. The rate increase left banks holding long term, low interest rate bonds they couldn't get out of without substantial losses.