THE recent spate of bank failures in the United States provides a fascinating window into how the fast and furious rise in interest rates over the past year is working its way through the financial system.

While US regulators have acted quickly to staunch the fallout, the events that played out over the past few weeks could now lead to broadly tighter financial market conditions even if the US Federal Reserve moves more cautiously with further rate hikes.

For investors, the whole episode is a further warning against complacency. While it is a good thing to be positioned for an eventual tapering and easing of monetary policy, it is absolutely crucial to avoid exposure to the excesses built up in financial markets during the past decade of ultra low interest rates that may now unwind in a disorderly manner.