“First banking stampede driven by Twitter”, says the president of financial services at the Chamber
The massive amount of customer withdrawals that led to the collapse of Silicon Valley Bank had all the earmarks of an old-fashioned bank run, but with a new twist befitting the core industry the bank served: much of it unfolded online.
Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with a negative cash balance of $1 billion, the company said in a regulatory filing. The astonishing withdrawals took place at the speed allowed by digital banking and were likely fueled in part by the viral panic that spread across social media platforms and reportedly in private chat groups.
In the day leading up to the bank’s collapse, several prominent venture capitalists took to Twitter privately and used their large platforms to sound the alarm about the situation, sometimes writing in capital letters. Some investors urged startups to rethink where they keep their money. The founders and CEOs then shared tweets about the bank’s troubled situation in private Slack channels, according to The Wall Street Journal.
On the other side of the screen, startup leaders struggled to withdraw funds online — so much so, in fact, that some told CNN that the online system appeared to be failing. Still, the end result was a modern run to withdraw funds, which House Financial Services Chairman Patrick McHenry later described in a statement as “the first bank run fueled by Twitter”.
“Even in ancient times, long before we had any form of modern communication, these tended to be very fast-moving rumors. The reason this happened is that people would walk down the street and watch people outside the banks,” Andrew Metrick, Janet L. Yellen Professor of Finance and Management at the Yale School of Management told CNN. “Now we don’t have that, but we have Twitter.”
The bank stampede experience was also a far cry from the earlier days when large numbers of customers would physically show up at a bank to withdraw funds (although some would also line up outside Silicon Valley Bank locations). Now many can do this online or through mobile devices.
“What made Silicon Valley Bank unique was (1) the ease with which its customers could make withdrawals and (2) the speed with which word spread of Silicon Valley Bank’s impending demise,” he wrote in a letter published this week. Monday Ben Thompson, an analyst who follows the technology industry. “It was the speed, driven by zero distribution costs for buzz and takedowns, that was so troubling.”