In directionally-dried colloidal dispersions regular bands can appear behind the drying front, inclined at $pm45^circ$ to the drying line. Although these features have been noted to share visual similarities to shear bands in metal, no physical mechanism for their formation has ever been suggested, until very recently. Here, through microscopy of silica and polystyrene dispersions, dried in Hele-Shaw cells, we demonstrate that the bands are indeed associated with local shear strains. We further show how the bands form, that they scale with the thickness of the drying layer, and that they are eliminated by the addition of salt to the drying dispersions. Finally, we reveal the origins of these bands in the compressive forces associated with drying, and show how they affect the optical properties (birefringence) of colloidal films and coatings.