Silicon Valley Bank has failed and like a lot of things that come out of the tech world, it’s very name partly explains why Californian regulators closed SVB’s doors on Friday. The words “sili” and “con” are not inappropriate when you look at the way this bank operated. It’s no surprise that it has been found out as the Fed embarks on one of the most dramatic interest rate rising policies in US history.

Why was it silly? It lent money to a lot of tech start-ups, which made the bank more risky. It was a big player in providing venture capital, which also can deliver great payoffs but, again, it’s more risky.

Sure, the bank, which started in 1983, survived the ’87 crash and the dotcom bust, but it was a smaller player then. Because of where it’s located, SVB is said to be “among the top 20 American commercial banks, with US$209 billion ($317 billion) in total assets at the end of last year, according to the FDIC.” (9news.com.au/finance)

While the news of its failure broke on Friday, there were signs the bank was in trouble. Last week it sold a lot of securities at a loss and then it announced a capital raising to the tune of US$2.5 billion. That got a lot of smarties worried.

This set a run on the bank, with panicky customers (many tech businesses and successful tech players) putting the bank under survival pressure.

Clearly, the combined smashing of the bank’s bond profits, combined with customers who were feeling the heat from the Fed’s interest rate policy, which saw their share prices plummet taking a lot of their wealth with it, combined to leave this bank in a precarious and silly position.

This from CNN sums up the bank’s big, related problems: “SVB's US$21 billion ($31 billion) bond portfolio was yielding an average of 1.79 per cent – the current 10-year Treasury yield is about 3.9 per cent.

“At the same time, venture capital began drying up, forcing start-ups to draw down funds held by SVB. So, the bank was sitting on a mountain of unrealised losses in bonds just as the pace of customer withdrawals was escalating.”

Undoubtedly, other banks would be feeling the pressure of rising interest rates. If I was American, I’d want to be in Bank of America or Chase J.P.Morgan or Citigroup, not a small bank.

Why? The US banking system is for a country whose national anthem has the words the “land of the free and home of the brave”. The US banking system is too free, therefore you have to be brave to trust any bank that’s not too big to fail.

The next worry for stock markets will be, could this SVB failure lead to a contagion and runs on other banks. It’s possible that smaller banks could see a loss of customers and it could make them vulnerable.

Fortunately, like here, the US system has a guarantee on savers’ deposits. This means for up to $250,000, the Federal Deposit Insurance Corporation will ensure you get your money back. This means many savers have little to worry about but borrowers could see loans called in or bigger-than-expected rises in interest rates from their lenders. This bank failure is just another ugly side of what the Fed is doing to kill inflation. It was always going to have economic casualties.

On the possibilities of a bank domino effect possibly happening, I like this from the respected Moody’s economist Mark Zandi: "The system is as well-capitalised and liquid as it has ever been. The banks that are now in trouble are much too small to be a meaningful threat to the broader system."

So, could it happen here?

It’s very unlikely because we have much bigger banks and even the smaller banks are pretty big. Also, the regulation of our banks is world class, helped by the extensive branch system, which explained why our big four banks were in the top 20 of the world when the Global Financial Crisis hit! This partly explained why Australia was the only western economy not to go into a recession with the GFC!

This SVB failure is the tip of the iceberg for failing US businesses but I don’t think it will be a huge iceberg of a GFC or dotcom bust proportions.

However, just like our RBA, the Fed has to be careful about US inflation-killing interest rate hikes.