How Twitter helped push Silicon Valley Bank over the edge
Word quickly spread on Twitter as prominent entrepreneurs and investors began pulling their money out of the Silicon Valley bank over concerns about the bank’s solvency.
“Run to the bank!” Entrepreneur Kim.com posted a tweet on March 12 that was viewed by 2.4 million people and retweeted nearly 3,500 times. “Get your money out. First thing on Monday. US banks in trouble. FED emergency meeting. Deposits may freeze. Possible withdrawal limit. When markets fall, your bank deposits that US banks will invest” Uses can be risky. Cash is king. Get out now!
Social media chatter, which boosted offline conversations within California’s clubby tech community, along with the ease of online banking helped fuel the disruptive — and very innovative — revolution. Bank run. In modern times, panic can be transmitted with just a few keystrokes.
“It’s a case of running a bank that happened in less than 48 hours when people got a lot of information through Slack, WhatsApp, text messages and even emails saying, ‘Houston, we have a problem,'” Andres Vanelli, chief economist at the CFA Institute, an association of investment professionals, told CBS MoneyWatch.
“You don’t even need to go to your bank branch – you just press a few buttons on your smartphone and your money is transferred from a bank that you think is safer,” he added. “, he added. “And it has the potential to do things with it that are potentially harmful, because if everyone does it at the same time, bad things happen.”
“Twitter on fire”
Charlotte Principato, a financial services analyst at decision intelligence company Morning Consult, said that social media has expanded offline, private communication and SVB caters to a strong, high-tech clientele, which is likely to accelerate the bank’s growth. It plays an important role in resolution.
“Twitter was a huge part of what caused the hysteria. There were a lot of conversations on the good old-fashioned telephone because it’s such a strong community, and Twitter ignited the fire. That’s really why this digital Bank on the run.”
As a result, the one-two punch of social media and financial technology makes banks more vulnerable to a flash run than just a decade ago.
“The combination of these two factors could potentially have a major impact on the banking world,” Vinelli said.
SVB’s sudden failure suggests the digital age may require tighter banking regulations, Eugene Ludwig, former comptroller of the currency and CEO of Ludwig Advisors, told CBS MoneyWatch. “Media is so much a part of our lives that it’s more immediate and useful than ever before, and it’s easy to get started. You just see things on the screen and you get distracted.”
Ludwig compared social media chatter to “the need to be able to put out a forest fire quickly.”
“When they’re small they don’t look like much, and then they can blow up very quickly and turn into a huge fire and we have to be able to put them out with water,” he added. Without any harshness. Laws Other banks may suffer from lightning fast runs.
Virtual speed bumps?
As always with even well-intentioned regulations, however, the devil is in the details. “Irresponsible talk can be stopped, but in a free society and with our modern technology, it’s very difficult,” Ludwig said.
The CFA Institute’s Vanelli said regulators should create “speed bumps” to stop digital banks, such as rules that slow the movement of money in and out of bank accounts.
But the trend in banking is to enable even faster ways to move money around, while the question of whether to guard what people can say online about financial matters is complicated.
“We have fairly sophisticated laws and regulations that deal with financial advice, but the reality is that people out there who don’t think of themselves as financial advisers are actually providing financial advice by saying, ‘Go buy it. And sell,’ ” Vanelli said.