‘The first Twitter-fuelled bank run’: how social media compounded SVB’s collapse

theguardian.com:

Shares in banks all over the world have plummeted in recent days as fears that the collapse of Silicon Valley Bank (SVB) could precipitate a wider crisis in the sector.

The speed at which market jitters have spread across the world have forced bank executives and regulators to move with unprecedented swiftness: US authorities guaranteed all deposits in SVB – and smaller bank Signature – 48 hours after it collapsed. Just hours after Credit Suisse’s share price plunged on Wednesday, the Swiss central bank stepped in with a $54bn loan.

While there’s nothing new about a financial emergency, these crises – and their resulting responses – are unique in having been accelerated by a frenzy of social media chatter that has fuelled the panic.

A bank run occurs when customers lose faith in an institution’s ability to look after their money, and large numbers withdraw their deposits all at once. As more people withdraw their funds, the likelihood of the bank being able to cover the withdrawals falls, leading more customers to pile in and demand the return of their money.

“If you see a bomb disposal expert running down the street, don’t ask them what’s happened, just try to keep up,” writes Daniel Davies, the managing director of Frontline Analysts, in the Financial Times.

Rumours around a bank’s solvency can build up for months or years before it leads to a run. Or it can happen in a matter of hours.

The collapse of SVB was the second-largest bank failure in the history of the United States. The largest, Washington Mutual in 2008, took place over the course of eight months. SVB’s collapse played out in barely two days.

Anxious Twitter posts and WhatsApp exchanges, coupled with the ease of access that online banking provides, are seen by