Silicon Valley Bank failure raises fear of broader financial contagion

By David J. Lynch

Friday’s implosion of Silicon Valley Bank could blow a hole in the most innovative corner of the U.S. economy, interrupt tech workers’ paychecks and push other regional banks into similar distress. But one thing it doesn’t seem likely to do — at least for now — is trigger a wider financial meltdown, banking experts said….“It’s extremely painful. It could have very adverse consequences: microeconomic harm, social welfare harm. People all of sudden could be up the creek. But that’s not systemic,” said Karen Petrou, managing partner of Federal Financial Analytics, a Washington consultancy. “I don’t think we’re at risk of a crisis.” For the Federal Reserve, the bank’s death marks both a sobering and salutary moment. The central bank has sharply increased interest rates over the past year, hoping that higher borrowing costs would slow the economy and take the steam out of high inflation. Higher credit costs inevitably would hurt the most speculative parts of the economy hardest. So it’s no surprise that a bank catering to risky tech companies might be among the first casualties of higher rates.