The closure of three mid-sized banks in the United States within a week has sent shudders through the banking industry on both sides of the Atlantic, caught regulators flat-footed, and created an acute dilemma for the US Federal Reserve.

While two of the banks – Silvergate Bank and Signature Bank – were closely tied to the long-impaired crypto industry, Silicon Valley Bank (SVB) was the bank of choice for many venture capitalists and start-ups. Its sudden collapse, which surprised customers, regulators and analysts, was the result of a flight of deposits, which the bank was not able to cover by selling its holdings of Treasury securities, which had sharply fallen in value in the wake of draconian interest rate hikes by the Fed over the past year. In many ways, this was an idiosyncratic case. SVB had a concentrated deposit base with large deposits, about 90 per cent of which were not insured, being above the US$250,000 (S$337,450) limit, and an unusually high ratio of securities with unrealised losses on its balance sheet relative to its capital.