The problems of two small banks on the West Coast are rippling across markets and causing new investor concerns about some of the country's largest financial institutions.

Why? Three words: rising interest rates.

The Federal Reserve's aggressive campaign to bring down inflation helped set the stage for major problems at two California lending institutions — SVB Financial (SIVB) and Silvergate Capital (SI) — as an outflow of deposits forced both to sell assets at a loss. Those assets were bonds.

Banks are big investors in assets like Treasury bills because they need lots of safe places to park their cash. Many financial institutions piled into these investments during a period of historically-low interest rates that spanned the early years of the pandemic, as banks took in tons of new deposits and lending was somewhat restrained.

But now the Fed is hiking rates at a rapid clip, with Fed Chair Jay Powell warning earlier this week the central bank may have to speed up the pace of its rate increases to cool the economy further. The problem that creates for banks is simple: higher rates lower the value of their existing bonds.

The withdrawals at SVB's Silicon Valley Bank have come from startups and technology firms, many of which also ran into new trouble once the Fed began raising rates.