Implausible though it may sound, the collapse of Silicon Valley Bank casts an interesting light on the vexed question of whether central bank inflation targets should be raised to reduce the risk that overtight monetary policy will precipitate a recession. This is because SVB, however inept its risk management and investment judgment, was ultimately a victim of the US Federal Reserve’s monetary policy regime.

In the period after the financial crisis of 2007-9, deflationary forces were the overwhelming challenge for central bank policymakers. Their problem was not how to bring inflation down to within target, but how to raise it up to the target level. This they could only do by resorting to ultra-low and even negative nominal interest rates.

A consequence of this extreme monetary licence, as Edward Chancellor points out in his book The Price of Time, has been a plethora of market distortions including the creation of the “everything bubble” in which prices of almost all assets were propelled to astronomic heights. With the income on assets severely depressed, investors were driven to search for yield regardless of risk.