For markets Silicon Valley Bank’s demise signals a painful new phase

, goes the adage, central bankers must tighten monetary policy until something breaks. For much of the past year this cliché has been easy to dismiss. Starting in March 2022, America’s Federal Reserve has raised rates at the since the 1980s. Even as markets plunged, the world’s financial system stayed wreckage-free. When British pension funds wobbled in September, the Bank of England swiftly helped right them. The most notable collapse—, a disgraced former crypto exchange—was well outside the mainstream and, regulators say, caused by fraud rather than the Fed.Now something has broken. The failure of Silicon Valley Bank (), a mid-tier American lender that went bust on March 10th, sent shock waves through markets. Most noticeable were convulsions in the stocks of other banks, which investors worried may have similar vulnerabilities. Nasdaq’s index of bank stocks dropped by a quarter in the course of a week, erasing gains from the preceding 25 years. Shares in American regional lenders were bludgeoned much harder. Then the turmoil went global: shares in Credit Suisse, a European bank, cratered on March 15th. Financial markets have entered a new phase, in which the Fed’s tightening cycle starts to bite.