The Silicon Valley Bank crisis appears to demonstrate the danger of the Federal Reserve not properly performing one of its central functions: acting as a lender of last resort during a run. Thanks to the fall-off from venture-capital firms—its principal clientele—the bank was attracting less deposit funding. And it was maintaining a portfolio of long-dated Treasuries and mortgage-backed securities matched against short-term deposits. From a credit-risk perspective, SVB was much less risky than a standard bank making loans. Its issue was interest-rate risk: After a year’s worth of rate hikes, the losses on SVB’s portfolios couldn’t be offset by decreasing the value of deposits.

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